Weekly Outlook for the Broad Markets

New week and new opportunities. Putting last weeks trading into perspective relative for this weeks outlook and beyond is important. Can last weeks breakout move be trusted? That will be the question as we start this week of trading. The following is an outline of what we are watching:

Current Drivers:

  1. Spain/Europe have been in the headlines relative to sovereign debt. Draghi has been instrumental in putting perspective on the currency issues as well as the challenges that still face Spain, Italy and others. The reaction to the comments were not great, but then investors do lack faith in the outcome. I believe this is more of a volatility issue for US markets than a downside risk going forward. In Europe it is creating trading opportunities as it all unfolds. 
  2. Currency remains something to watch as the euro/dollar trade is building momentum. The dollar is moving higher and the euro lower… primarily on issue above. If this continues watch the price of oil for one, and the impact on the trade deficit for two.
  3. Federal government dealing with the budget and debt ceiling. Yes, there is still time, but it is starting to surface in analyst reports on why the markets are overbought and the reason for a correction on the horizon. Remember, the squeaky wheel always gets its way.

What about the Charts?

  1. S&P 500 Index closed above resistance at 1515 and opens the upside opportunity to 1550-1575. The primary trend currently is up. 
  2. NASDAQ 100 Index closed above 2760 and broke from the trading range where it has been stuck for the last six weeks. The primary trend is up, but watch for confirmation on the upside move on Friday.
  3. Dow Jones Industrial Index failed to clear the 14,000 level, but remains in a sound uptrend looking forward. The primary trend is up with some consolidation near the high.

Sentiment:

This bias is towards the downside via talk and projections/speculation. However, the VIX shows little signs of¬†volatility¬† and what did show up has moved back towards the lows at the end of last weeks trading. There is premium being built into the put side of the options market which would show a negative bias based on investor outlook. Watch and be patient… don’t assume anything and let the market determine direction not speculation.

Economic Data:

Last week the reports were on the positive side relative to the actual reported data versus the forecasts. That said, there was nothing overly positive in the data to bring buyers to the table with conviction about future growth. This week the key data point will be January sales report on Wednesday. We got some indication from the same-store-sales released on Friday. I would expect this to be a positive point on the week… if not, watch for selling in the consumer services sector. The consumer sentiment report on Friday will give some insight to the outlook of the consumer. With new taxes and higher gasoline prices I am not optimistic on this one.

Bottom Line:

Patience is the thought of the week. We have to let the market determine direction and not the prophets in the media or on Wall Street. Remember their bias is towards their portfolio not yours. The trend is our friend and we will continue to track the uptrend until it breaks. We have adjusted stops according to the data and our thoughts going forward. Look for a follow through to Friday on the NASDAQ and in the technology sector. Some new leadership would be helpful to the upside.

One day at a time, one position at a time and disciplined strategies to managing our money.