Skip to main content

See also:

Weekly market recap: Markets in consolidation

DIA - Week ending 05/17/14
DIA - Week ending 05/17/14
OptionsAnnex.com

Overview

For the week ending May 17, 2014, after the Dow and S&P made new highs on Tuesday, the markets fell back into consolidation by Friday's close. The markets continue to exhibit the 'buy-the-dip' and 'sell-the-rallies' behavior as the major advance on Monday and Tuesday was met by selling on Wednesday and Thursday; only to be met again with buying on Friday near the close.

Market behavior was the topic of discussion on Friday. According to the Gene Peroni, senior vice president of equity research at Advisors Asset Management, “It looks like several selloff attempts and shallow retreats brought in buyers in the afternoon". Kate Warne, investment strategist at Edward Jones, added “This has been a consistent pattern: every time stocks decline, buyers arrived and bought the dip as the long-term outlook remains positive”.

Economic news was mixed: Jobless Claims reporting far better than expected (297k actual vs. 317k expected); Industrial Production far worse than expected (-0.6% actual vs. 0.0% expected); Housing Starts far better (1.072M actual vs. 0.980M expected); and Consumer Sentiment far worse (81.8 actual vs. 84.5 expected).

On the earnings front, as earnings season comes to a close, better-than-expected results were posted by JC Penney, Nordstrom, and Applied Materials.

In The News

Both Apple and Google have agreed to end all lawsuits between them. In a joint statement there is no apparent reason given for this action, except to state that no cross-licensing agreement will be part of the truce. This ends a suit started by Motorola (now owned by Google) in 2010 against Apple for patent infringement.

As complaints mount, the SEC has warned investors against buying OTC stocks in marijuana companies. Temporary trading suspensions have been placed against the following companies: FusionPharm Inc. (FSPM); Cannabusiness Group Inc. (CBGI); GrowLife Inc. (PHOT); Advanced Cannabis Solutions, Inc. (CANN); and Petrotech Oil and Gas, Inc. (PTOG).

Next Week

The vacillations of the latest monthly data are still reflecting the impact of bad weather as they show a moderate uptrend in consumer spending, multifamily housing, and manufacturing .

The focus next week in the U.S. will be on the following: the FOMC Minutes on Wednesday; Existing Home Sales on Thursday; and New Home Sales on Friday.

Globally, with weak first quarter GDP figures, the focus will be on the Bank of Japan's Monetary Policy announcement, and China's Flash PMI.

We are expecting the markets to remain in consolidation next week as the situation in the Ukraine remains subdued. There is a moderate amount of economic data being reported, but no surprises are anticipated. Expect to see a rise in volatility.

Market Gauge

Year-to-date the markets are mixed: Dow -0.5%; S&P500 +1.6%; Nasdaq -2.1%.

The Markets for the past week were: DJIA down -0.6%; S&P500 flat; Nasdaq COMP up 0.5%.

Commodities (ETFs) for the past week were: Gold (GLD) up 0.32%; Silver (SLV) up 1.03%; Oil (OIH) down -0.89%; Dollar (UUP) up 0.19%; 30-yr Bonds (TYX) dropped 13 basis points to 3.34%.

The VIX this past week (a measure of market sentiment and volatility) dropped slightly to 12.44% due to improved economic news and a reduction in concern over Ukraine.

Weekly Review

To see the week in review, go to the Econoday calendar.

On Monday, with improving employment and low interest rate Fed policy, the Dow rose 0.7% to 16,695.

On Tuesday, despite a weak retail sales report, the Dow rose fractionally to 16,715.

On Wednesday, with profit taking, the Dow dropped fractionally to 16,613.

On Thursday, despite a large drop in initial jobless claims, the Dow dropped -1.0% to 16,446.

On Friday, with mixed economic news and the surging Housing Starts, the Dow rose 0.3% to 16,491.

Next Week's Calendar

To see what's on the calendar for next week, go to the Econoday calendar.

The economic calendar for next week is light: on Monday – FedSpeak; on Tuesday – FedSpeak; on Wednesday – Weekly EIA Petroleum Status Report, FOMC Minutes, Janet Yellen speaks; on Thursday – Weekly Jobless Claims, PMI Manufacturing Index Flash, Existing Home Sales; and Friday – New Home Sales.

If the Markets move down, stay on the side lines or consider Contra ETFs. For Option players, selling premium is advised.

For more information about options, see the 'Suggested by the author' links below.

To the Charts

The following ETFs (DIA, SPY, QQQ) provide a technical review of the Market (and are also excellent Option trading vehicles). Represented are the Dow Industrials (DIA), S&P500 (SPY), and Nasdaq 100 (QQQ).

The Charts for each include views for Monthly, Weekly (including Price Channels), and Daily (including monthly Pivot Points) with MACD and Stochastic indicators. The Pivots are: white for central pivot point; yellow for R1 and S1; magenta for R2 and S2; red for R3 and S3.

DIA

The Dow Industrials (DIA) closed down at 164.61. If the DIA drops, then the next level of support will be at 159.88 (weekly chart); the next level of major resistance is 167.29 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up above the overbought area.

The weekly chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up above the overbought area.

The daily chart indicates a bearish posture (down Arrow) with the MACD positive but weakening, and the Stochastic moving down below the overbought area.

SPY

The S&P500 (SPY) closed up at 188.05. If the SPY drops, then the next level of support will be at 181.31 (weekly chart); the next level of major resistance is 190.42 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving up above the overbought area.

The weekly chart indicates a bearish posture (down Arrow) with the MACD positive and strengthening, and the Stochastic moving up above the overbought area.

The daily chart indicates a bearish posture (down Arrow) with the MACD positive but weakening, and the Stochastic moving down below the overbought area.

QQQ

The Nasdaq 100 (QQQ) closed up at 87.71. If the QQQ drops, then the next level of support will be at 83.28 (weekly chart); the next level of major resistance is 91.06 (weekly chart).

The monthly chart indicates a bullish posture (up Arrow) with the MACD positive but weakening, and the Stochastic moving down above the overbought area.

The weekly chart indicates a bearish posture (down Arrow) with the MACD just positive, and the Stochastic moving up toward the midpoint.

The daily chart indicates a bullish posture (up Arrow) with the MACD positive and strengthening, and the Stochastic moving down at the overbought area.