The Stock Market Results for the Past Week
October 08, 2012

The Stock Market: S&P 500 Four Days Of Gains For The Week -- Earnings Watched!

The Past Week: Dow Tags Five-Year Best as Unemployment Takes Center Stage!

by Ian Harvey

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October 06, 2012

Introduction to the Past Week The stock market rallied for the past week but retreated Friday after the government said the unemployment rate fell to 7.8%, lowest since 2009. Apple, Zynga and Facebook also led a pullback. Crude oil fell below $90.

The Eurozone markets were also higher for the week despite more negative data regarding their economies. The concern over the crisis seemed to cool in the past week, but new protests are likely in the week ahead and they could trouble the stock market.

The rest of the economic data last week was positive. Early in the week, manufacturing data beat expectations. Orders in the non-manufacturing sector also showed an unexpected surge. Factory orders were weak overall, but if you exclude transportation equipment, they were actually up.

The stock market got a nice surprise Friday, as after revisions the unemployment rate dropped below 8% for the first time in three years. The stock market acted well all week, and by Wednesday's close, the technical action suggested that the correction was over.

Even though the close was mixed-most of the averages closed Friday well below the day's highs-the overall action was constructive.

Stocks gave up most of a rally on Friday, but buying very late in the session pushed the Dow Jones Industrial Average (DJI) to their best close in nearly five years.

The initial buying was set off when the Labor Department said the U.S. unemployment rate had dropped to 7.8% in September, its lowest level since 2009. September payrolls grew by 114,000, the department said, a touch below the consensus estimate of 120,000 jobs. But estimates for payroll growth in July and August grew by 86,000, suggesting that the summer slowdown wasn't as bad as thought.

The news of the falling unemployment rate cheered the White House, reeling from President Obama's performance in Wednesday's debate against Mitt Romney. It dismayed Republicans. "This is not what a real recovery looks like," Romney said in a statement. Former General Electric (GE) CEO Jack Welch went so far as to accuse the Labor Department of cooking the numbers. Labor Secretary Hilda Solis said she was "insulted" by the idea.

The pullback began when big technology stocks, such as Apple (AAPL), Amazon.com (AMZN), Facebook (FB) and Zynga (ZNGA), stumbled and accelerated on declines in energy and financial stocks. It was a ‘sell-on-the-news’ type of a situation – the stock market had the big jobs numbers in the morning, but traders and investors didn’t want to keep their positions going into the weekend and next week!

On the negative side, the speed with which the stock market will get overbought on continued strength may pose a problem -- the market hasn’t had a truly ugly day since the highs registered on September 14th.

Most of the stock market gains this year have been prompted by easy monetary policies. The improvement in U.S. hiring last month is one bright spot as manufacturing around the world has been showing signs of softness in recent months.

• The Dow Jones Industrial Average (DJI) rallied 1.29 percent for the week, finding a foothold above 13,600 for the first time since December 2007.
For the year, the Dow is up 11.4%
Bank of America (BAC) was the biggest gainer on the Dow, while H-P (HPQ) tumbled more than 13 percent.

• The Standard & Poor's 500 Index (SPX) saw a 1.41% rise for the week.
For the year, the S&P 500 up 16.2%.
Most key S&P sectors ended in positive territory for the week, led by financials. Techs were the only decliners.

• The Nasdaq Composite Index (COMP) enjoyed a weekly return of 0.6%.
For the year, the Nasdaq up 20.4%.

The Stock Market Ending October 05, 2012


The CBOE Market Volatility Index (VIX), widely considered the best gauge of fear in the stock market, stayed below its 20-day moving average, and notched its lowest close since Sept. 24 on Friday. The VIX inched 0.2 point, or 1.5%, lower for the day, and backpedaled 8.9% for the past week.


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TOP OPTIONS TRADES SINCE JULY 01, 2012

TRADE GAIN TRADE GAIN
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% JCP Nov 25.00 Calls 67%
GLD Nov 165.00 Calls 72% LVS Dec 45.00 Calls 67%
GLD Oct 170.00 Calls 52% MON Jan 2013 87.50 Calls 26%

The iShares Barclays 20+ Yr Treasury Bond (TLT) gapped lower Friday, but still needs to drop below the September low at $118 to complete a top. It will take a significant drop in the bond market to encourage the many bondholders to move into the stock market.

Sector Performance

The iShares Dow Jones Transportation (IYT) was the best performer last week, up over 3%, as lower crude-oil prices helped airline stocks move higher. It is still badly lagging the Dow Industrials, and needs several strong weekly gains to catch up.

The other standout performers were the Select Sector SPDR Health Care (XLV) and the Select Sector SPDR Financials (XLF), as both were up well over 2%.

The Select Sector SPDR Industrials (XLI), Select Sector SPDR Consumer Discretionary(XLP), and Select Sector SPDR Consumer Staples (XLY) also did pretty well, as they were all up over 1.5% for the week.



The Select Sector SPDR Technology (XLK) and the Select Sector SPDR Energy (XLE) were the two laggards. They were pretty flat for the week. The Percent Change chart above reflects the performance of these two sectors plus the Select Sector SPDR Health Care (XLV) since the June lows.

Even though crude-oil prices have been generally soft, XLE has done the best-up 18%-followed by the 15.8% gain in the XLV. It is interesting to note that XLV moved above XLK in late September, signaling that it was ready to outperform XLK.

Crude Oil

The December crude-oil contract was hit hard in the middle of the last week, dropping close to the $88 level before it rebounded Thursday. Prices were once again soft on Friday, as oil closed the week down more than $2 per barrel. The key 61.8% support is at $87.40, so the week ahead could be important.

Precious Metals

The SPDR Gold Trust (GLD) made new rally highs in the past week, but was lower Friday. The daily On-balance Volume (OBV) did form a slight negative divergence (line b) last week, suggesting that a short-term top may be in place.

The bullish camp has been getting quite crowded, which has increased the risk on the long side. Therefore, we could just get another pullback to the $167 to $169 level, but one cannot rule out a drop back to the 38.2% support just above $164. Clearly now is not the time to be buying, and it would be advisable for those who are not long to cancel any open buy orders and wait until we see signs that the stock market rally is ready to resume.



The iShares Silver Trust (SLV) could be even more vulnerable, as it has short-term weekly support at $32.70. There are likely stops under this level that if hit could cause a downdraft. However, there should be a good entry point in SLV in the next month.

Company News and Earnings for the Stock Market in the Past Week

Zynga plunged after the social gaming company cut its full-year outlook. Sentiment surrounding Zynga has already been hurt by a number of executive departures, and the company said the current quarter is “challenging” due to poorer-than-expected performance for certain games.

Facebook, also fell following the news. The social-networking giant received 14 percent of its revenue from Zynga in the first half of the year. Morgan Stanley lowered its price target on the stock to $28 from $30.

Sprint Nextel is considering making a rival bid for MetroPCS Communications, which agreed on Wednesday to a merger with Deutsche Telekom's T-Mobile USA, according to people familiar with the situation. Sprint Nextel shares rose 2.2 percent to $5.20, while MetroPCS lost 0.3 percent to $12.65.

Apple ended near session lows as the iPhone maker's stock broke through a 50-day moving average.

• Separately, rival Samsung posted a record quarterly profit, nearly doubling last year's figure.

Avon Products rallied to lead the S&P 500 gainers after the beauty-product company announced Chairman Andrea Jung will step down at the end of the year and will be succeeded by Fred Hassan.


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The Jobs Report

The latest jobs report came out Friday, with the Labor Department reporting that nonfarm payrolls (jobs) increased by 114,000 in addition to the unemployment rate dropping to 7.8% for the month of September.

The chart below provides some insight into the current US job market by comparing the percentage change in total nonfarm payrolls (blue line) since the declared end of the Great Recession to the performance of the private sector job market (gold line) and government sector job market (red line) during the same period. As today's chart illustrates, the overall job market (blue line) continues to trend higher albeit at a pace that has slowed over the past several months.

The chart also illustrates that the government job market trended significantly lower since the first half of 2009 (with the exception of temporary census hiring in mid-2010). This decline was due to federal, state and local governments attempting to realign their budgets following an unexpected decline in revenues (e.g. property taxes, income taxes, etc.) as a result of the historic plunge in housing prices and nonfarm payrolls. Over the past three months, however, the number of government jobs has been on the rise.

Chart of the Day - Nonfarm Payrolls


The unemployment rate is derived from a telephone survey of about 50,000 households (often called the "household survey").

Most economists had expected the rate to rise to 8.2%. It fell because the number of workers estimated to be working rose by 873,000, the biggest gain since June 1983. The number of unemployed fell by 456,000.

The number is famously volatile, in part because it includes people who are self-employed. It is not clear how it will be revised in the next two months. The report -- like many government reports -- is revised twice after its initial release to reflect the inclusion of more data.

Still, the household survey suggests that unemployment fell among just about all groups the Labor Department tracks. The alternative unemployment measure, which amalgamates those unemployed with those not looking for work or taking part-time work, was unchanged from August at 14.7% but was down from 15% in July and 16.4% a year ago.

The payroll gains weren't nearly so bad and probably reflect the economy more clearly. Private-sector employment grew by 104,000. But that gain reflects the upward revisions in July and August.

The biggest gains came in the education component of state government. There were also gains in health care, transportation and professional and business services.

Manufacturing declined, including automobile manufacturing. Construction employment grew by 5,000.

Residential construction employment at 564,800 was up 1,100 as evidence builds of a small but real housing recovery. But that's still down 457,200 from the peak of the housing boom in April 2006.

Two other areas cheered economists: The average workweek increased to 34.5 hours from 34.4 hours last month, and the average hourly earnings rose 7 cents to $23.58.

Labor Department data showed the U.S. unemployment rate dropped by 0.3 percentage point in September to 7.8 percent, its lowest since January 2009. Investors focused on a survey of households that pointed to a big surge in hiring.

A separate survey of business establishments showed employers added 114,000 jobs to their payrolls last month while data for July and August was revised to show 86,000 more jobs created than previously reported.

Consumer Credit

Also on the economic front, consumer credit increased by $18.1 billion to $2.726 trillion in August, after falling for the first time in nearly a year in July, according to the Federal Reserve.

Overseas Influences on the Stock Market

Shares ended higher in Europe after ECB President Mario Draghi said that the central bank was ready to act and that its new bond-buying program had already helped ease stock market tension. But worries over Spain continued after the country’s Finance Minister Luis de Guindos said the nation does not need a bailout.

The SPX in the Past Week

The S&P 500 broke a four-day string of gains, ending slightly lower on Friday as an unexpected drop in the U.S. unemployment rate was overshadowed by concerns about the coming earnings season, which begins with Alcoa in the week ahead.

All three major U.S. stock market indexes came off session highs by afternoon trade, with the S&P 500 turning negative for the first time this past week, as investors braced for weak corporate results.

The Nasdaq was pressured by Apple Inc , which fell 2.1 percent to close at $652.59.

S&P 500 earnings for the third quarter are forecast to have fallen 2.4 percent from the year-ago period, which would be the first decline in three years, according to Thomson Reuters data.

Despite the lackluster performance for the day, the S&P 500 is still up 16.2 percent so far this year. The benchmark is on track for its best yearly run since 2009 when stocks rebounded after the financial crisis.


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The decline from the September 14 highs has some nice similarities to the decline from the August 21 highs to the early September lows. In August, the correction lasted 12 trading days, while through Wednesday it had been 14 days since the December S&P 500 E-mini futures had seen their high of 1,468.


The decline from the September 14 highs has some nice similarities to the decline from the August 21 highs to the early September lows. In August, the correction lasted 12 trading days, while through Wednesday it had been 14 days since the December S&P 500 E-mini futures had seen their high of 1,468.



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The Major ETFs in the Past Week

**A more detailed report can be obtained by ……CLICKING HERE…..**


Other Articles Relating to the Week Ahead

1. The Economy and Earnings in the Week Ahead – October 08, 2012

2. The Week Ahead in the Stock Market – October 08, 2012

3. The Major ETFs in the Week Ahead – October 08, 2012


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