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Options Pro Report - A Market Weekly U.S Economy Section

U.S. Economy:  On Monday the Housing Market Index kicked off the week to a poor start. Homebuilders reported the weakest conditions in over a year. Despite another bout of bad news data from Housing Starts, earnings’ reports sparked a 30 point rally in classic turnaround Tuesday fashion. Wednesday, Ben Bernanke’s somber reminder that the economic outlook remains “unusually uncertain” quickly pared the previous day’s gains. More promising earnings gave recovery efforts the footing needed to stage rallies both Thursday and Friday. Since the European stress tests gave little along the lines of a clear picture, I think they were discounted as a non-event until further review. The week-over-week gain was 40 points in the S&P. The last two weeks I’ve penned, “We’ve sold off and now we are rallying, without “macro risks disappearing”. We are in a fundamental trading range in which positive earnings may carry us a few more rounds and push the S&P up to test the 50 DMA.” The late week charge proved too much to bear for the 50 DMA. In fact, the close was also above the psychological 1100 barrier. An attack on the 200 DMA now seems imminent. In my opinion, as mentioned, positive earnings may carry us a few rounds. However, with earnings’ season coming to a close, positive economic numbers will now be needed to support this move. In the absence of such positive numbers, I think the market will have no choice but to honor the downtrend. Bulls will want to see a new high above the 1129 June peak, otherwise the lower highs will signal that the bear marches on.

Here are some of the reports to watch for this week: Monday, New Home Sales (310K); Tuesday brings ICSC-Goldman Store Sales, Redbook, S&P Case Shiller, Consumer Confidence (51.0); Wednesday, MBA Purchases Applications, Durable Goods Orders (1.0%); Thursday, Jobless Claims (460K), Money Supply; Friday, GDP (2.5%), Employment Cost Index (0.4%), Chicago PMI (56.0), Consumer Sentiment (67).

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