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WEEKLY OUTLOOK, March 21


By Jody Osborne, Optionetics.com
3/21/2005 7:00 AM EST


For the second straight week, the major market indices fell. In fact, the Nasdaq ($COMPQ) briefly fell below support at 2,000, but support held. For the week, the Naz gave up 1.66 percent to close at 2,007.79. The Dow ($INDU) fell 1.36 percent to 10,629.08 and the S&P 500 ($SPX) declined 0.88 percent to 1,189.50. The week was highlighted by a slew of economic data, but oil prices were the major story, as they rose to new all-time highs.

For the week, oil gained 4.2 percent to close at $56.72. However, crude reached a high above $57 a barrel intra-week. Gasoline prices have also skyrocketed, rising 3.8 percent for the week to $1.5755 per gallon. Across the country, the average price for a gallon of gas rose to $2.05—a new high as well. This is a major concern, as high gas prices act like a tax on consumers. If prices remain elevated for long, it can create a reshuffling in spending, which impacts sentiment and eventually profits. Ironically, last week oil prices rose despite a gain in crude inventories and an announcement from OPEC that it would increase production in April. However, demand for crude continues to rise, leaving questions about supply in the forefront.

Besides high crude prices, traders are concerned about interest rates. The FOMC meets this Tuesday and it is highly expected that the Fed funds target rate will be raised by 25-basis points. The key will be what the Fed has to say about the future of the economy and interest rates going forward. If the Fed hints at accelerated hikes in the future, this would have a bearish impact on stocks. At the same time, if the Fed can keep its “measured” pace statement and has sanguine things to say about inflation, then stocks could rally. The FOMC will have the PPI to digest at its meeting, though the CPI is on scheduled for release until Wednesday.

The list below details the economic reports on tap this week:

Monday: None

Tuesday: ICSC-UBS Same-Store Sales, Producer Price Index, FOMC Announcement, State Street Investor Confidence Index

Wednesday: MBA Purchase Applications, EIA Petroleum Status Report, Consumer Price Index, Existing Home Sales

Thursday: Jobless Claims, Durable Goods Orders, New Home Sales

Friday: Good Friday Holiday – Markets Closed

Economists and traders alike will be watching the inflation data closely. There have been noted inflationary pressures at the producer level, but so far, these pressures have not been passed on to the consumer. February’s PPI is expected to be rather mild, with a 0.3 percent increase overall and a 0.1 percent increase at the core. In January, the core rate soared 0.8 percent, so traders will be looking for a milder advance at the core. The CPI is expected to show similar results, rising 0.3 percent overall and 0.2 percent at the core.

Earnings news will remain light this coming week, though there will be some reports of interest. Software maker Oracle (ORCL) is set to report on Tuesday and traders will be looking at how its acquisition of PeopleSoft (PSFT) has progressed. Other reports that could garner attention will come from home-builder KB Home (KBH) and Paychex (PAYX) on Monday. Beside ORCL, Tuesday will see reports from Family Dollar (FDO) and Williams-Sonoma (WSM). On Thursday, ConAgra (CAG) and Solectron (SLR) will announce.

Friday is a holiday and the stock market will be closed. It is going to be interesting to see if the bulls can garner any strength after falling for two straight weeks. The Naz did find support, but whether this will result in a move to the upper end of its trading range is hard to say. The most likely scenario is a continued move within a range for stocks until first quarter earnings announcements start to accelerate.

Last Friday was option expiration for March, so new expiry months will be available starting Monday. This means it is time to make adjustments to existing positions needing new option legs. One of the greatest advantages options offer is diversity. By setting up the right strategy, a trader can profit even in sideways moving markets.


Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site