The Stock Market and the Wild Ride for the S & P after Jackson Hole!
Week Ahead: “The streak has been broken, but the trend hasn’t!”
Wall Street: Bernanke Under Pressure -- But Will He Say Anything?
by Ian Harvey
August 27, 2012
A six-week string of gains in the Standard & Poor's 500 Index (SPX) ended on Friday amid shifting expectations for central bank stimulus. The week ahead could bring clarity on that issue, and that could determine whether the recent stock market rally that took the index to four-year highs will persist.
The streak has been broken, but the trend hasn’t, therefore the next major move on the S&P will probably push the stock market S&P500 up towards 1,450 or 1,500. With small- and mid-cap stocks at near their all-time highs, and if they break those highs, this will prompt the stock market to move much higher.
Still, the stock market could be in for a bumpy ride in the week ahead before Friday's meeting of central bankers in Jackson Hole, Wyoming. Investors are looking for clues on whether Federal Reserve Chairman Ben Bernanke will announce a third round of quantitative easing.
Bets on aggressive action to increase growth have spurred most of the stock market's recent gains, meaning any disappointment could stop the rally in its tracks. The CBOE Market Volatility Index (VIX), a measure of investor anxiety, jumped almost 13 percent last week.
However, Fed Chairman Ben Bernanke’s speech in Jackson Hole is long on anticipation but will probably come up short on news.
The Fed chairman speaks at 10 a.m. ET Friday at the St. Louis Fed’s annual symposium in Wyoming, and traders are hoping for some new insight into what the Federal Reserve is thinking, including whether and when the Fed might take further easing steps. However, economists and Fed watchers don’t expect Bernanke to say much new, as the Fed continues to weigh incoming economic data ahead of its Sept. 12 meeting.
Also, volume may actually be weaker in the week ahead for the stock market, in spite of the Federal Reserve retreat in Jackson Hole, Wyo., due to the fact that it's the week before the Labor Day weekend, and many investors will head to the beach.
However, the picture for the month is much better for the stock market. The Dow is up 1.2%, while the S&P 500 has gained 2.4% and the Nasdaq up 4.5%. For the year, the Dow is up 7.7%. The S&P 500 is sporting a 12.3% gain, with the Nasdaq up 17.9%.
• The Dow Jones Industrial Average (DJI) erased 0.88 percent for the week, to close at 13,157.97.
The Dow's gain was its largest since Aug. 3, when it jumped 217 points.
The Dow ended the week less than 1% below its 2012 closing high of 13,279, set on May 1.
• The Standard & Poor's 500 Index (SPX) lost 0.50 percent, to end at 1,411.13.
The gains for the S&P 500 were their best since Aug. 16.
The S&P 500 is about 0.5% below its 2012 closing high of 1,419.04, set on April 2.
• The Nasdaq Composite Index (COMP) slipped 0.22 percent, to finish at 3,069.79.
The gains for the S&P 500 and Nasdaq were their best since Aug. 16.
The Nasdaq is 1.7% under its 2012 high of 3,122.57, set on March 26. • The Nasdaq-100 Index (NDX), which tracks the largest Nasdaq stocks, gained 16 points to 2,778.
The gain came despite Apple (AAPL), the largest influence on the index. The stock saw a gain of nearly $7 Friday morning slip to 59 cents at $663.22
The CBOE Market Volatility Index (VIX), widely considered the best gauge of fear in the stock market, ended its four-day win streak Friday, and fell 4.9% to close at its intraday low. However, the stock market's fear gauge notched a weekly return of more than 12.8%.
Trading volume was extremely light for the past week due to the summer holiday season and ahead of the Fed's symposium at Jackson Hole, Wyoming, where Bernanke and ECB President Mario Draghi are expected to speak.
Volume, on Friday, was the second lowest for a full day this year, with 4.6 billion shares trading on the New York Stock Exchange, the Nasdaq and the Amex. The year-to-date average is 6.6 billion.
**For a more in-depth look at the past week…..CLICK HERE…..**
The Major ETFs in the Past Week
The stock market lost ground in the past week, but managed to claw back some of the losses on Friday, August 24.
While the week was still down overall, the index Exchange-Traded Funds (ETFs) remain very close to 52-week highs and two of the ETFs actually made new 52-week highs this week. That is a positive sign, but as mentioned in prior stock market summaries, this is a critical juncture for stocks. Declining volume warns the rally may be running out of steam, but price - the ultimate indicator - continues to move higher. Using another indicator, the true strength index (TSI), you are able to isolate potential turning points quite early, and keep yourself in the trend if the price continues to rally.
TOP OPTIONS TRADES SINCE JUNE 01, 2012
|HLF July 47.50 Calls||53%||APPL Aug 650 Calls||67%|
|DLTR Aug 110 Calls||32%||UIS Oct 17 Calls||79%|
|HSY Aug 70 Calls||56%||TSO Nov 25 Calls||54%|
|NKE Oct 92.50 Calls||49%||HLF July 47.50 Calls (again)||38%|
|FB Aug 25.00 Puts||500%||DISH Sept 30.00 Calls||100%|
|APPL Jan 13 650.00 Calls||71%||CSTR Oct 42.50 Puts||400%|
|LNKD Aug 92.50 Puts||30%||LNKD Aug 100.00 Calls||250%|
|SLV Nov 30.00 Calls||114%|
• There's worry that Greece's and Spain's problems won't get neatly solved. The European Central Bank meets Sept. 6 but probably won't announce a program to buy up debt of eurozone nations.
• Details of the bond-buying plan have been sketchy and not likely to be fleshed out until the Sept. 6 meeting in Brussels. Even then, the program might get blown up if a German court says Germany can't participate in the program. A ruling is expected on Sept. 12.
• Despite all the speculation, the Federal Reserve may disappoint and not do a new round of so-called quantitative easing -- the buying of Treasury securities to ensure more cash in the economy. While Bernanke thinks the Fed can do more, there are divisions in the central bank that could derail any stimulus plans.
• A big signal of where the Fed is headed will come in a week when Bernanke speaks on Aug. 31 at the Fed's annual retreat in Jackson Hole, Wyo. A day later, ECB President Mario Draghi also speaks and may get more attention than Bernanke.
• And what promises to be a bitterly fought U.S. election campaign will be in full swing.
The Major ETFs in the Week Ahead
The ETFs pulled off their highs this past week, with two of the ETFs managing to create 52-week highs. The TSI is useful in trend confirmation, and also for isolating potential reversals in the trend quite early. Unfortunately, no indicator is accurate all of the time.
Currently, the price trend remains higher, and that can't be ignored. But with multiple divergences and sluggish volume, there is cause for caution. Use stops and don't get stuck on only one side of the market. At these important levels, there will either be confirmation that the market is indeed going higher, or the warnings signs will be become reality and the price drop will come.
Earnings in the Week Ahead
Earnings season is winding down, with only five S&P 500 components scheduled to report in the week ahead, including Tiffany & Co (TIF), Joy Global Inc (JOY) and H.J. Heinz (HNZ).
With 98 percent of S&P 500 companies having reported results, 67 percent have topped expectations by an average surprise factor of 4.3 percent, according to Thomson Reuters data. The 67 percent beat rate is higher than the long-term average of 62 percent. However, there have been some notable disappointments lately, including Hewlett-Packard Co (HPQ).
Traders in the energy markets will also be watching the progress of Isaac in the week ahead, as the storm moves into the Gulf of Mexico, with oil and gas drilling rigs in its path.
Investors will also be sorting out the aftermath of the late Friday jury verdict, which gave Apple (AAPL) a $1 billion victory over Samsung. Samsung was found to have infringed on Apple patents on phones and tablets. Apple’s stock gained more than 1.7 percent in after-hours trading, reaching a new high.
Economy in the Week Ahead
Economic indicators for the week ahead includes August reads on consumer confidence and sentiment, the latest read on Chicago PMI and July pending home sales. The Fed's Beige Book, a collection of anecdotal information on current economic conditions, will also be released.
Bernanke will not front run the Fed meeting or speak for the committee, and Fed members will want to get a look at the August employment report and other data before making a decision on easing.
One possible scenario from the meeting will be to see the Fed act on rates guidance in September. The Fed will probably then extend the guidance on rates to 2015, and a possible limited QE — something in the range of $250 billion that will extend into January.
Following the Jackson Hole meeting, there will be a market holiday on September 3 for Labor Day. Trading is expected to pick up after that, with a major catalyst seen on September 6, when the European Central Bank has its next meeting.
The ECB recently pledged to "do whatever it takes" to address the euro zone's debt crisis, comments that contributed to recent positive sentiment.
Further Articles Relating to the Week Ahead
1. The Economy and Earnings in the Week Ahead – August 27, 2012
2. The Past Week Stock Market Results – August 27, 2012
3. The Major ETFs in the Week Ahead – August 27, 2012
4. Stock Market Monday and Underperformance, August 27, 2012
5. Hedge Fund Managers Becoming More Bullish, August 27, 2012
6. New Range Options from CBOE , August 27, 2012