Earnings and Economic Data Will Set the Tone

We are prepared to start a new week of trading on the heels of a big bounce on Friday. The challenge for investors is earnings and more economic data ahead. Retail sales data is out this week with 0.2% growth expected due primarily to auto sales. However, take out auto sales and the number is much weaker. The challenge is the same store sales data which was out last week and were not impressive. When we consider that 70% of the US economic activity comes from the consumer it raises more concerns looking forward.

We still have manufacturing issues and this week the Empire State and Philadelphia Federal Reserve surveys of regional manufacturing are both released. The data will give us some further insight into what is happening the sector. The decline in the ISM Manufacturing below 50% was a big negative from the June data. If the negtaive outlook continues with the current updates look for more downside in response. The index is holding support near the June lows currently, and the break lower could be a negative short term.

The housing sector (XHB) has been doing well and we face existing and new home sales this week as well. Will they hold the current trend higher of do we see a leveling in the data? The sector is one of the leaders short term and has moved back near the high end of the trading range. Watch for an opportunity to add to the sector based on the reports. Good news should provide the catalyst to the upside and a break higher. Watch for a move above $21.90 to start the move higher.

Mr. Bernanke will speak with Congress this week as well to give his input on the outlook for the economic picture and insight into what action, if any, the Fed intends to take going forward. Most expect nothing new as he has already stated he sees growth at 2%, and 8.2% unemployment to remain going forward. Unless he surprises everyone with something unique it should not have any impact on the broad markets.

The S&P 500 index held support at 1330 and bounced last week. The upside target is 1390 to maintain the current uptrending channel and add a higher high in the trend. There is nothing significant driving the index higher and any negative data will likely negate the move higher on Friday. The VIX index shows little in the way of fear to hurt the index starting the week. A spike back above 20 would be a negative for the outlook of the current move in the index. Watch, be observant realtive to the direction as it unfolds.

The NASDAQ index broke lower last week taking out support at 2900, but it then managed to bounce back above the 2900 on the close Friday. As we start the week of trading the ability to hold above the 2580 level will be key. QQQ is back above $63.20 and in position to bounce back to the previous high. We will watch to see how this unfolds on the week and see if the data can provide a lift back towards the $65.20 mark. If the trade develops it will be worth taking on a short term play.

Consumer Staples (XLP) broke above the $35.10 mark and continued the upward trek higher. The sector remains a leaders as the defensive sectors continue to offer short term leadership for the broad markets. Healthcares (XLV) and Utilities (XLU) are pushing higher as well. These sectors are on worth adding to your watch list short term to play the upside moves.

All said this is a week for data, both earnings and economic data will direct investors on what is working and what is not. Put you discipline trading hat on and remain focused during the trading week.