The Week Ahead in the Stock Market  February 11, 2013

Week Ahead: State Of The Union And More Earnings!

Stock Market: S&P 500 Hits Five-Year High, Extends Rally!

Wall Street: Strong Start To 2013 Could Be Under Pressure!

by Ian Harvey


February 11, 2013


After a strong rally to start the year and many indexes near round-number levels, the past week was a logical time for a breather. Also note that the Dow Jones Industrial Average (DJI) was down slightly on the week. As the broad markets attempt to break free of this recent congestion, the volatility in Europe and retail sales could steal the headlines in the week ahead.

The stock market is no stranger to strong performances in January, only to see the lofty gains early in the year transition into months of grinding action that goes nowhere.

That's what happened in 2011 and 2012, and some analysts think 2013 could follow the same routine – however, this is debatable. Markets are up this year in the face of Washington's debates over fiscal policy, but a looming deadline on spending reductions could test the gains.

The mentality is "ride the wave as far as you can and try not to be the last one off."

Major indexes recently crossed psychologically important milestones - 1,500 for the S&P 500 and 14,000 for the Dow industrials. The S&P is at its highest level in five years, while the Nasdaq finished on Friday at its highest close since November 2000, the tail end of the Internet bubble.

The current levels are more significant than Wall Street's usual fixation on round numbers. This is only the second time the Dow has reached 14,000, and the third time the S&P has hit 1,500.

That could leave the market churning as investors test whether there's enough support to reach new highs, or if a pullback is needed. The sharp gains and overall bullishness on Wall Street leave stocks vulnerable to sudden shocks, such as a flare-up of the financial crisis in the euro zone, which momentarily sidetracked the market earlier this week.

Quick Reference:

‘The Past Week’
‘The Upcoming Week’
‘The Economy’
‘Earnings and Company News’
‘A List of Key Events’
‘Sentiment Effect on Stocks’
‘Interest Rates’
‘The NYSE Composite’

Other Articles:

A List of Companies Reporting
Stock Market Correction Ahead - Providing Buying Opportunities!
Stock Market Expectations in 2013

The stock market was choppy for most of last week, but then turned higher Friday in a more convincing fashion. The strong close does favor another push to the upside in the week ahead.

The stock market has a seasonal tendency to correct in February, and the sharp gains so far in 2013 make this a distinct possibility. The technical action remains positive and shows no signs yet of a top, but this could change in the next two weeks.

Sunday is the beginning of the Chinese New Year. This is the year of the “Black Water Snake,” and runs through January 31, 2014.




The Past Week

The global markets have been acting well, as euro fears dissipated last week. Strong earnings reports from companies like LinkedIn (LNKD) pushed not only its stock sharply higher, but also supported the market.

A last-minute budget deal in Washington to avoid the ”fiscal cliff” of tax hikes and spending cuts helped power the rally, as did as optimism about the housing sector and gradual improvements in the jobs market.

The S&P 500 finished the week higher despite logging its biggest daily decline in almost three months Monday following worrying news from Europe.

The index fell 1.2 percent that day as bond yields in Spain and Italy rose on concern that the region's politicians will drag Europe back into crisis. 'European Central Bank - ECB' President Mario Draghi's cautious comments about the region's economy also weighed on markets Thursday.

Largely positive corporate earnings reports and a report that showed that the U.S. trade deficit narrowed sharply in December provided more fuel for the market's advance Friday.

• The Dow Jones Industrial Average (DJI) had another choppy session to end the week, going up nearly 80 points early in the session and crossing 14,000, only to slump at the end of the day and close at 13,992.97, up 49 points or nearly 0.4%.

The Dow finished a week that saw at least two 100-point swings down 0.1%.

However, the Dow had its best January in almost two decades, and closed above 14,000 on February 01 for the first time since 2007.

The index is up 6.8 percent so far this year. However, for the week, the Dow was down 0.1 percent.

Pfizer was the biggest decliner on the Dow for the week, while UnitedHealth was the best performer.

• The Standard & Poor's 500 Index (SPX) also gained on Friday, closing at 1,517.93, up more than 8 points, or 0.6%.

The index stayed above the 1,500 mark for the fourth straight day and the ninth in 11 sessions.

The index is at its highest since November 2007 and has advanced for six weeks, the longest streak of gains since August.

The SPX finished up 0.3% on the week, and is up 6.4% so far this year.

Among the key S&P sectors, consumer staples was the best weekly performer, while telecoms slipped.

• And the Nasdaq Composite Index (COMP) rose nearly 29 points on Friday, or 0.9%, to finish at 3,193.87.

The Nasdaq composite stock index closed at a 12-year high, boosted by gains in technology shares and stronger overseas trade figures.

For the week, the COMP climbed nearly 0.5 %.

The Markets Ending February 08, 2013

CBOE Market Volatility Index (VIX) ), widely considered the best gauge of fear in the market, finished Friday’s session at 13.02, down less than half a point, or 3.6%.

The VIX finished the week with a gain of 0.9%.

Sector Focus

The iShares Dow Jones Transportation (IYT) closed up over 1% last week, having been on a tear since the November lows, gaining over 20% in that span. The weekly chart shows that prices have been testing the weekly Starc band over the past three weeks, with the 127.2% Fibonacci target at $110.

The relative performance broke through its resistance (line b) a week ahead of prices, and continues to act strong. The weekly on-balance volume (OBV) pulled back two weeks ago, but has now turned up once more.

The ranges in the sector ETFs were pretty small last week, as most closed with just minor gains. The Select Sector SPDR Energy (XLE) was up 0.6%, while the Select Sector SPDR Technology (XLK) gained 0.7%. The Select Sector SPDR Financial (XLF), Select Sector SPDR Utilities (XLU), and Select Sector SPDR Materials (XLB) all showed slight losses.

Earnings Reports for the Past Week

With fourth quarter results for more than 75% of the market capitalization of S&P 500 companies already known, we have seen enough reports to be able to say that earnings results have been good enough.

Earnings are not great and offer nothing to be excited about, but they are not bad either. Perhaps expectations had fallen enough in the run up to the reporting season that the actual results looked better in comparison. As early as October, fourth quarter earnings were expected to be up +7%, which dropped to +0.5% by early January – there is not much growth to speak of, but that wasn’t unexpected.

However, earnings have mostly come in stronger than expected since the start of the reporting period. Fourth-quarter earnings for S&P 500 companies now are estimated up 5.2 percent versus a year ago, according to Thomson Reuters data. That contrasts with a 1.9 percent growth forecast at the start of the earnings season.

The improved level of positive surprises aside, management guidance has not been that bad either. Management guidance is not ‘positive’ in the sense that they are guiding higher -- they are not. But barring a few exceptions, they are not overwhelmingly guiding lower either, as was the case in the third quarter. We have started seeing downward adjustments to estimates for the coming quarters, particularly the first half of the year, but not at the pace that we experienced with the fourth quarter estimates.

Total earnings for the 333 S&P 500 companies (76.6% of the index’s total market cap) that have reported results are up +2.7% from the same period last year, with 67.3% of the companies beating expectations and a median surprise of +3.2%. Revenues are up +0.5%, with 62.5% of the companies beating top-line expectations and a median revenue surprise of +0.9%.

Combining the reports that have come out with the ones still to come, the composite fourth quarter earnings growth rate is +1.7%, which compares to a flat reading in the third quarter, but lower than what we have been seeing the quarters prior to that. But the expectation is for earnings growth to resume from the second quarter of 2013 and increase materially in the back half of the year. We have started expectations for 2013 come down a bit, but there is likely much more room to go.

Currently, analysts are expecting earnings for the fourth quarter of 2012 to rise 6.5 percent for S&P 500 companies, according to data from S&P Capital I&Q. That's an increase from the 2.4 percent growth rate recorded for the preceding quarter.

Stocks have benefited as investors poured a net $4.1 billion into stock mutual funds since the start of the year, according to data provided by Lipper.

So far, the S&P 500 companies that have posted quarterly results, has 70 percent of firms topping earnings expectations and 66 percent exceeding revenue estimates, according to Thomson Reuters. If all remaining companies report earnings in line with estimates, earnings will be up 5.2 percent from the fourth quarter of last year.

Crude Oil

The April crude oil contract closed the week down $1.84 per barrel, but the volume was the lowest of the past few weeks. Still, the weekly OBV has turned lower, and we may see a further pullback. Good support sits in the $95 to $93.50 area.

The weekly and daily OBV look strong, as volume surged in January. There is first good support now in the $94.50 to $95.80 area.

Economic Reports in the Past Week

The economic news was generally upbeat. The generally volatile factory orders were up 1.8% last Monday, and Tuesday’s ISM Non-Manufacturing Index reflected rising momentum for the job market. The week ended with a smaller than expected trade deficit, which caused many economists to raise their GDP forecasts. The trade deficit shrank in December to $38.5 billion, it’s narrowest in nearly three years, indicating the economy did much better in the fourth quarter than initially estimated.

Also, signs of economic strength overseas buoyed sentiment on Wall Street. Chinese exports grew more than expected in January, while imports climbed 28.8 percent, highlighting robust domestic demand. German data showed a 2012 surplus that was the nation's second highest in more than 60 years, an indication of the underlying strength of Europe's biggest economy.

In Europe, a two-day European Union (EU) summit continued in Brussels, the first since Prime Minister David Cameron confirmed Britain will hold a referendum on EU membership. Early on the day, EU leaders agreed to the framework for a new 960 billion euro ($1.3 trillion) budget, to be finalized later on Friday.

Interest Rates

The bond market has continued to get quite a bit of attention lately, as some are convinced that the major flow of money from bonds to stocks is underway.

The yield on the ten-year T-Note did close a bit lower last week, its daily uptrend (line a) is at 1.65%, with minor support now in the 1.8% area.

The Week Ahead

The Economy in the Week Ahead

The week ahead brings in Q4 earnings results from 367 companies, including 52 S&P 500 members. This includes industry leaders like Cisco (CSCO), Coke (KO), Pepsi (PEP), Comcast (CMCSA), Whole Foods (WFM), and many others.

Also, the first widely watched economic report in the week ahead comes on Wednesday with retail sales, which provides a gauge of inflation for January. The same-store sales reported last week showed strong January numbers, and the longer-term chart shows a solid uptrend (line b) and the breakout in 2011 above the 2007-2008 highs (line a).

On Thursday, we get weekly jobless claims.

Also in the week ahead, the National Federation of Independent Business releases its monthly small business optimism index on Tuesday, which is a strong indicator of whether or not small businesses will be expanding and hiring in the near-term.

On Friday the Empire State manufacturing survey is due, which measures progress in that important sector in the New York region.

Also Friday is the Thomson Reuters/University of Michigan consumer sentiment report, always significant because consumer spending accounts for 70% of the U.S. economy.

Hurdles for the Economy in the Week Ahead

• One significant hurdle is the automatic federal spending cuts that will go into effect as of March. So far, the equity market has largely ignored the back-and-forth related to delaying the so-called sequester that would trigger $85 billion in automatic spending cuts, which would hit the defense industry particularly hard.

If the cuts go ahead unchanged, that could slow economic growth this year due to the swiftness of the cuts, according to the Congressional Budget Office. While that's not as dire as the immediate threat of default presented by a possible failure to raise the debt ceiling, it isn't positive for markets.

• The future path of monetary policy will be in focus next week as several members of the Federal Reserve are scheduled to speak on the economy and policy. The central bank is currently buying $85 billion worth of assets a month as it tries to bolster the economy.

A growing number of policymakers say the Fed should taper its bond-buying when the time is right rather than bring the stimulus to an abrupt end and investors will be looking for signs of what the central bank's exit strategy may be.

• Highlighting next week’s economic calendar is a political event – the president’s State of the Union address on Tuesday night.

Given that the economy has been the number one political topic since the financial collapse of 2008, the address will undoubtedly focus on measures President Obama is taking to further the recovery.

An issue that has popped to the forefront since the November election is immigration, and Obama is sure to cover it during his speech. In a rare instance of bipartisan support, a group of senators is pushing a broad reform package that would make it easier for undocumented workers to become documented and at the same time tighten up illegal immigration at the borders.

More specifically, the senators have pitched a handful of very specific proposals that would make it easier for highly-skilled foreign workers to come to the U.S. and stay here if they choose.

The tech sector strongly supports these measures but realizes the specific proposals will only forge ahead as part of a broader immigration reform package, a point Obama is certain to address on Tuesday.




Earnings and Company News in the Week Ahead

We still have plenty of Q4 earnings reports to come, but the bulk of the earnings season is now behind us, with results from 342 S&P 500 companies already out as of Friday, February 1. Please note that these 342 companies are more than just 68.4% of the index’s total membership – they account for 77.1% of the index’s total market capitalization and bring in 78.6% of all Q4 earnings.

By the end of this week, we will have Q4 earnings reports from 394 S&P 500 companies that together account for 86.3% of the index’s total market capitalization. The Retail sector will be the only group by the end of the week that will have more than half of its Q4 results still awaited (retailers typically have fiscal Q4 period ends in January).

The reality of the Q4 earnings season is that it has turned out to be not as bad as many suspected. Leaving aside anemic earnings growth, on most other metrics the fourth quarter reporting season is quite good. Not only are the ratio and magnitude of surprises better than the previous quarter and comparable to the last many, but the tone of management guidance has also been on the reassuring side.

A List of Key Events for the Week Ahead

All earnings dates listed below are tentative and subject to change. Please check with each company's respective website for official reporting dates.


Earnings: The key earnings reports include Loews Corp (L) in the morning and Masco (MAS) and Lions Gate Entertainment (LGF) after the close.

Economy in the Week Ahead:

• There are no major economic reports scheduled.


Earnings: Coke (KO), Goodyear Tire (GT), Avon (AVP), Fossil (FOSL) and Michael Kors (KORS) will be reporting results, all in the morning.

Economy in the Week Ahead:

• The Treasury Department budget, and
• The National Federation of Independent Business (NFIB) Small Business Optimism Index.


Earnings: Deere & Company (DE), Dr. Pepper (DPS), Comcast (CMCSA) and Dean Foods (DF) are the key reports in the morning, while Cisco (CSCO) and Whole Foods Market (WFM) report after the close.

Economy in the Week Ahead:

• Retail sales for January
• Import/export prices, business inventories, and
• Crude inventories report.


Earnings: Pepsi (PEP), Apache (APA) and Borg Warner (BWA) will report in the morning, while Agilent (A) and CBS Corp (CBS) will report after the close.

Economy in the Week Ahead:

• Weekly Jobless Claims


Earnings: JM Smucker (SJM), Campbell Soup (CPB) and Ventas (VTR) are the major reports today, all in the morning.

Economy in the Week Ahead:

• February Empire State Index,
• the January Industrial Production, and
• the preliminary February University of Michigan Consumer Sentiment data

CLICK HERE for a complete list of companies reporting in the week ahead.

.....or go to.....

CLICK HERE for a complete list of companies reporting in the week ahead.




Sentiment Effect in the Week Ahead

Though many market skeptics have thrown in the towel, there are a few still out there. One often-interviewed analyst last week said he was the shortest he has ever been. This is the kind of sentiment that can help move the market higher.

The individual investor has become a bit more nervous, as the press seems to be focused on the inflow of funds to stocks and the generally poor record of the individual. Only 42.4% are bullish now according to the American Association of Individual Investors (AAII), down from 52.3% on January 24. The percentage of bears has crept up to 29.4%. The number of bullish financial newsletter writers was up a bit to 54.7% while the number of bears dropped to 21.1%.

The NYSE Composite in the Week Ahead

The weekly chart of the NYSE Composite continues to look strong, even though it was a bit lower last week. The all-time highs from 2007-2008 are considerably higher at 9,724 and 10,178. The NYSE Advance/Decline (A/D) closed at another new weekly high, and is well above the highs that it made in 2007-2008. It just recently broke out of its consolidation pattern, which indicates the market can still go higher.

The rising 20-week ’Exponential Moving Average’ (EMA) has moved up to 8,491, which is 4.8% below Friday’s close. Though not shown on the chart, the NYSE did come close to the 20-day EMA last week, which is now 8,831. There is first meaningful chart support in the 8,550 to 8,700 area.

Conclusion for the Week Ahead

The S&P 500 closed above 1,500 on Friday, though it likely faces resistance getting above 1,523.57, which would be its highest intraday level since November 2007.

Analysts say the index could ultimately make a run for the all-time high of 1,576.09.

It is expected by many, that the market will see a pullback in the 5 percent range, though that should present a better buying opportunity.

Use the dips to buy stocks in sectors such as homebuilders and transportation -- when the market is trading in a range, buy what's working!

For now, analysts are taking the market's sideways direction as a healthy move as it tries to establish a stronger base to push higher.

To be stuck in a trading range for a period of time after having a great start to the year is probably a positive sign and maybe beneficial to the week ahead!

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