CYCLE/TREND Analysis Update for the week Ahead
Breakout or Breakdown? Interesting week we had... As mentioned in my previous cycle trend post with which this post replies I made a case for both the bullish and bearish scenarios while leaning towards the bearish side. We appear to want to go higher and one thing I did forget to mention (but mentioned a few weeks back) was the mini-turn scheduled for the 22nd. This turn date became a reality, although I still have questions as to the strength of this turn and its overall effect moving forward. Before I get into that and what I believe will materialize over the weeks to come, let's review the Econ #'s for the week.
The week started out with Durable goods which fell off significantly from what was expected, but better than the previous months data. Initial Jobless Claims rose by 13K and the Help Wanted Index came in flat. New Home Sales surged and could very well have played a major roll in this weeks strength while Existing Home Sales remained unchanged. The Chain Deflator was revised slightly higher, GDP was largely revised lower from 4.4% to 3.9% and the Michigan Sentiment # also revised a touch higher than expectations. I think we could classify this week as one of those mixed bag-o-numbers kind of weeks.
As for the week ahead, there is a lot to materialize this week with End of Quarter, the hand over of power in Iraq and the much anticipated FOMC meeting. As for myself, I consider 2 of these 3 as non-events. We will get or already have been seeing the end of quarter window dressing and as far as Iraq goes, just what do people expect to change after this momentous and over publicised event? Now as far as the FOMC meeting goes, this will be newsworthy. On the Econ #'s side we will get Auto/Truck Sales, Initial Claims yet again which only seems to oscillate between 330K and 360K, Construction Spending, ISM Index, Average Workweek, Hourly Earnings, NonFarm Payrolls, Unemployment Rate, Factory Orders, Personal Income/Spending, Consumer Confidence and Chicago PMI. Whew!!! A lot on our plate this week, that is for sure...
So what can we expect for the week ahead? Would I be too blunt in saying "the hell if I know"? I usually have a pretty good picture of what to expect for the week to come, but I would not be completely honest if I told you that I had a good idea of where we are going from here. BUT I will give a hypothesis of what may play out, SELL THE NEWS. That's it, I believe we could very easily sell the FOMC news. Everything that is going on will pale in comparison to what the Fed does or does not do. ALL eyes are on this. Of course there are other very important factors for the week to come, but they all pale in comparison. Of course just the opposite may play out and we rally on, but a number of underlying factors have caught my attention.
This market is being held together by external forces, i.e. program trading and central banks. Over the last couple of months volume has been rather lackluster and we have seen 1-1.5 million PUTS being held going into Options Expiry which at this juncture sits roughly at 500K. So if nobody is buying or selling as the market is relatively accustomed to and there is little short fuel for covering, where do we go from here? Another thing that has caught my eye is the new Highs/Lows Issues. While there has been a decent amount of new Highs, there are also a pretty decent amount of new lows being logged as well, could we be witnessing some distribution? This seems to be a dangerous time to be either fully long or short the market, but as I was last week I am still leaning towards more of a possiblity of seeing a sell off than seeing any substantial rally. Either way, we will know soon enough.
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