The Week Ahead in the Stock Market June 24, 2013

The Week Ahead: The Stock Market Faces More Hurdles After Fed Upset!

Stock Market: Economic Data Takes Center Stage In Earnings Lull!

The Game Plan: Fed Speeches and Housing Data!

Wall Street: Prepare For End of Quarter!

by Ian Harvey

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June 24, 2013

Introduction

Be prepared for more wear and tear on the brain cells and nervous system in the week ahead as the roller-coaster ride is sure to continue! The coming week could bring more big intraday swings and volatility as asset managers reevaluate their portfolios to adjust to the new regime of diminishing support from the Fed.

The stock market begins the last week of June still rattled by the U.S. Federal Reserve's plans for reducing its stimulus efforts, called quantitative easing, or QE.

The week ahead will also be a time to look forward to the second half, which many economists—and the Federal Reserve— believe will be faster growing than the first half. Therefore, every bit of data in the week ahead, including durable goods, new home sales and home-price data Tuesday, and jobless claims and personal income Thursday, will be important measures for markets.

Quick Reference for the Week Ahead:

‘The Past Week’
‘The Upcoming Week’
‘The Economy’
‘Volatility Continues!’
‘Earnings and Company News’
‘A List of Key Events’
‘The Spotlight on Certain Companies’
‘The Fed and Jobs!’
‘Expectations for the Stock Market’
‘Sentiment Effect on Stocks’
‘The NYSE Composite’
‘The SPX Outlook’
‘Conclusion’

The Fed in the Week Ahead

There is a parade of Fed speakers in the week ahead who will be watched for any nuance on the economy or the timing for Fed tapering that Bernanke laid out in his comments Wednesday. Even as the Fed ends its purchases, it will still hold nearly $4 trillion assets on its balance sheet, and Bernanke said that most Fed committee members expect the Fed to retain the mortgages it has been buying until they mature.

Volatility Continues in the Week Ahead!

Strategists expect the volatility to continue to surge in the week ahead across financial markets after a big move in rates forced a re-setting of asset values around the globe. The benchmark 10-year Treasury, which influences mortgages and other rates, rose above the psychologically key 2.50 percent mark Friday of the past week, for the first time since August, 2011.

This is quite significant as it is very rare to have a 90-basis point move in four weeks in 10-year yields.

Stocks in the week ahead will also be controlled somewhat by the bond market, which in turn may also react to volatility in stocks. The quarter end could be particularly important in credit markets, because of the big adjustment in rates.

Mortgages, too, have been volatile, as have the whole spectrum of credit markets.

However, the selling has made some markets more appealing -- countries like India and Australia are starting to look attractive from a rates perspective. Also the volatility has made agency mortgages very attractive, as well as some municipal bonds.

The volatility in markets is being caused by evolving monetary policy-- it is not just the Fed, but also the Bank of Japan which has moved into a massive easing program just as the Fed looks set to pull back.


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The Past Week


THE WEEK AHEAD

Introduction to the Week Ahead

”…... The Federal Reserve signaled this past week that the U.S. economy may soon be healthy enough to stand on its own after three years of being propped up by trillions of dollars of bond purchases.

However, while the trimming of the program should be viewed as a positive development, Chairman Ben Bernanke thoroughly spooked many market participants this past Wednesday by this statement that the central bank is likely to begin trimming down its asset purchases later this year, and halt the program entirely next year. The statement triggered a wave of selling on Wall Street and in bond markets, with the broad S&P 500 plummeting 3.9% over the two-day span -- pushing down year-to-date gains slightly south of 12%. Also, the Dow Industrials plunged as much as 460 points in just two days.....”

- The Past Week in the Stock Market – June 24, 2013

Investors continue to act as if the bull market has been jeopardized. The Fed over the last few years has been the most transparent in history. They may not have put an exact date on the calendar for when QE will be cut. However, they have been more than forthcoming on the general conditions that would precede this action.

The market in the past two weeks has been reacting violently due to the improved economic forecast, which means that QE tapering will be happening sooner rather than later. This is especially true with 7% unemployment being the more likely starting block for this activity.

The Fed has predicted an increase in GDP forecast to a range of +3 to 3.5 – this would be great but is very optimistic thinking. However, if that were truly the case, then we should all be buying a great deal more stocks as those conditions would be favorable for earnings growth.

The problem is that investors are conflicted over this information. Some see continued bullish conditions. Others see the end of the stock party as the QE punch bowl is taken away.

However, moving on….

In the week ahead, key economic data points will be the focus of markets as the end of quarter earnings lull comes to an end. However, a few key earnings reports are expected and could also move markets in the week ahead.

The Economy in the Week Ahead

The economic calendar is very busy in the week ahead beginning on Monday with the German IFO Business Climate Index followed by the Chicago Fed National Activity Index, the Dallas Fed Manufacturing Survey, the weekly 3- and 6-month bill auctions, and a speech from the Fed's Richard Fisher.

Tuesday kicks off with the Italian retail sales report followed by chain store sales, durable goods, and the FHFA house price index. Also, the Case-Shiller Home Price Index is expected as are new home sales, consumer confidence, and the Richmond Fed Manufacturing Index.

On Wednesday, the big report in the week ahead is due out as the U.S. GDP is reported. Also expected are the corporate profits report and a 5-year note auction. Overnight, the German employment report and unemployment rate could be a risk event.

Thursday morning brings the weekly jobless claims report as well as personal income and outlays, pending home sales, and the Kansas City Fed Manufacturing Index. Also, Fed members Jerome Powell and Dennis Lockhart are expected to speak.

On Friday, the Chicago PMI is due out and Fed members Lacker, Pinalto, and Williams are set to speak. Also, the Canadian GDP report is due out as well as the Michigan Consumer Confidence Survey.


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Earnings and Company News in the Week Ahead

The after-effects of the Bernanke announcement and the resultant impact on benchmark interest rates will no doubt remain the big issues for the market in the week ahead, but we are also getting close to the start of the Q2 earnings season.

In the week ahead reports from the likes of Walgreen (WAG), ConAgra (CAG), Lennar (LEN), Paychex (PAYX) and others will show a more promising side of the earnings picture. But we will likely have to wait a bit longer for the reporting season to get really high gear -- Alcoa’s (AA) report is coming on July 8th.

As has become customary at the start of recent quarterly earnings cycles, expectations for the Q2 earnings season remain quite low. A major driver of these low expectations is company guidance during the Q1 earnings season, which was overwhelmingly on the negative side. Total earnings for companies in the S&P 500 are expected to be up only +0.5% from the same period last year.

This is sharply down from +3.9% growth expected in the quarter in early April. Total earnings were up +2.3% in Q1, but growth was expected to be in negative territory at this stage before that reporting season.

Finance wasn’t a big driver of aggregate earnings growth for the S&P 500 in Q1, but takes back the lead role in Q2, with total earnings for the sector expected to be up +19.6% and estimates for the group are steadily going up. Earnings for the sector were up +7.7% in Q1, which came after many quarters of double-digit growth.

All the industries within the Finance sector -- major banks, regional banks, brokers and insurers -- are expected to have positive growth. But the growth picture is particularly notable for the brokerage and investment management industry players like Goldman Sachs (GS) and Morgan Stanley (MS), with total earnings for the group expected to be up +39.6% in Q2 after the +2.6% gain in Q1.

Unlike Finance, the earnings picture for the Technology sector remains fairly weak. Total earnings for the sector are expected to be down -8.7% from the same period last year, which follows the -3.8% earnings decline in Q1. Earnings estimates for the sector have been steadily coming down over recent weeks, with the current -8.7% decline down from expected decline of -3.1% in mid-April.

The weakest group within the Technology sector is the PC makers, with total earnings for the Computers and Office Equipment industry expected to be down -16.1% in Q2 after the -14.1% decline in Q1. Semiconductors and electronics are other Tech industries with negative earnings growth in the quarter.

Expectations for full-years 2013 and 2014 have come down far less than what we have seen for Q2 estimates. In fact, it is reasonable to assume that given the improving outlook for the Finance sector; aggregate estimates will start rising after a very long time in the coming weeks.

The +6.1% growth in total earnings this year, down from +6.8% in early April, reflects a material ramp up in the second half of the year that is then expected to carry into 2014. Combining the actual results for Q1 with estimates for Q2 gives us +1.5% year-over-year growths in total earnings in the first half of 2013. But total earnings are expected to be up +9.4% in the second half of the year and a further +11.5% in full-year 2014.

Total earnings for companies in the S&P 500 in Q2 are expected to remain to below Q1’s record level. By calculation, aggregate bottom-up earnings in Q2 will total $246.8 billion, compared to $245.6 billion in 2012 Q2 and 2013 Q1’s record of $253.9 billion. The Finance sector will generate $49 billion or 19.8% of the S&P 500’s total Q2 earnings, while the Tech sector is expected to generate $41.5 billion or 16.7% of the index’s total earnings.

Finance is reclaiming its dominant earnings position in the index which was taken over by the Tech sector following the 2008 crash. Tech remained the biggest earnings producer for the S&P 500 from 2008 through 2012, but the leadership role moves back to Finance this year. Finance is on track to produce $198.5 billion in 2013 (19.3% of the total), up from $173.6 billion in 2012 (17.9% of the total), while Tech is expected to produce $183.1 billion this year (17.8% of the total), up from $182.9 billion in 2012 (18.9% of the total).

The Spotlight on Certain Companies in the Week Ahead

Earnings from key companies in the week ahead includes Lennar (NYSE: LEN), General Mills (NYSE: GIS), and Blackberry (NASDAQ: BBRY). However, the earnings calendar remains thin in quantity of companies reporting in the week ahead.

Lennar in the Week Ahead

Home-builder Lennar is expected to report second quarter results on Tuesday. With the recent rise in mortgage rates and fears over the slowdown in the housing market, comments from the company could have a large impact on the broad market. Lennar is expected to report EPS of $0.33 vs. $2.06 a year ago on revenue of $1.33 billion vs. $930.16 million a year ago.

Sterne Agee's analysts weighed in on Lennar ahead of earnings. They reiterated their neutral rating and $45.00 price target on the stock Friday.

”We are maintaining our Neutral rating ahead of Lennar's EPS release. We believe investor apprehension about the direction of mortgage rates has resulted in volatile trading that is not reflective of positive fundamentals for the industry or for Lennar. Consequently, we believe a cautious approach is warranted ahead of Lennar's release.”

“At our F2Q13 unit backlog absorption (a/k/a backlog conversion ratio) estimate of 85%, we are at the low end of management's forecast range of 85% to 95% for 2Q and for 3Q. In F4Q13, Lennar expects unit backlog absorption to increase to a range of 90% to 100%.”

Meanwhile, ISI Group has the same price target as Sterne Agee at $45.00 but they have a buy rating on the stock. However, they are below consensus for the quarter.

“For the 1st time in numerous quarters, our EPS estimate of $0.27 is below the Consensus estimate of $0.33. While believing there is modest upside to our estimate, we think a meaningful beat compared to the Street forecast may prove challenging. The upside risk to our number lies primarily with the SG&A Ratio, as we believe management's guidance of a 100 bps improvement is likely conservative.”

“We forecast Total Revenues of $1,342M, up 44%, with Homebuilding Revenue contributing $1,181M (+48%) of that total. Consensus is $1,306M. We forecast unit Closings of 4,243, up 33%, with an ASP of $278K, up 11.5%. Our Backlog Conversion rate estimate is 86% compared to 118% last year.”

“This Quarter's Key Issues Include: 1) Strategy for growing OM back to top of industry? 2) Rialto update on plans for stronger growth and profitability? 3) West Coast Land JV updates and how we should think about earnings contributions? 4) Multi-Family update and how management looks at its growth prospects and potential profitability?”

General Mills in the Week Ahead

Consumer goods maker General Mills is expected to report fourth quarter results on Wednesday. The company is expected to report fourth quarter EPS of $0.53 vs. $0.60 a year ago on revenue of $4.32 billion vs. $4.07 billion a year ago.

Bank of America's analysts weighed in ahead of the report. They have a buy rating with a price objective of $50.00 on the stock.

“We are forecasting F4Q13 EPS of $0.55 and FY13 EPS of $2.70, which is $0.01 above the EPS guidance range (management recently preannounced and raised its EPS guidance from $2.66-$2.68 to $2.68-2.69). Key elements of our forecast: 1) Sales are forecasted to be up +4.5% y/y in F4Q13 and 5.7% y/y for FY13; US Retail organic growth is forecasted to be +1% for F4Q13 and FY13. 2) Gross margin is forecasted to be down -200bps in F4Q13 and -70bp for the year, driven by changes in business mix (Yoplait) and timing of merchandising. 3) Operating margin is forecasted to be down -160bps in F4Q13 and down -30bps for the year.”

Meanwhile, Morgan Stanley more cautious with an equal-weight rating and a $49.00 price target on the stock. “Company issues include yogurt headwinds (unchecked declines in core cup, and limited sequential share growth in Greek), continued momentum in Int'l (after DD EBIT growth in F13) and the balance between cash returns / M&A beyond 2014. Key industry issues include: (i) Greater clarity on F14 inflation, and the risk of continued promotional increases; (ii) Efforts to evolve the breakfast daypart; and (iii) With improved GM's, achieving balance between reinvestment and margin expansion.”

“Although Mills has fallen short of its HSD EPS target for the past two years, F14 targets seem secure (and arguably conservative) given limited inflation, improved volume, and the absence of several headwinds faced in 2013. We note that Mills historically has exceeded its initial targets, particularly in years of limited inflation.”

“With GIS trading at 16.2x 2014e P/E and +23% YTD, we believe – as noted in our recent downgrade – that an EW rating is warranted (underperformance in the event of further Fed easing also remains a risk). However, we remain generally positive on Mills' ability to deliver HSD EPS growth over time, and continue to prefer GIS to many of its higher-yield, US-focused peers.”

Blackberry in the Week Ahead

Mobile device maker and always exciting stock to follow Blackberry is expected to report fourth quarter results on Friday. Blackberry is expected to report first quarter EPS of $0.09 vs. a loss of $0.37 per share a year ago on revenue of $3.377 billion vs. $2.814 billion a year ago.

Societe Generale recently upgraded the stock to a buy ahead of earnings. They now have a buy rating and a $17.00 price target on Blackberry.

“RIM will report Q1 FY14 results on 28 June 2013. Expectations are diverse. According to Bloomberg, over the last month analysts' Q1 FY14 sales expectations have ranged from $3.1bn to $4.1bn while operating profit expectations stretch from a loss of $100m to a profit of almost $350m. We believe that this reflects the uncertainties caused by the portfolio change and the introduction of the new Z10 and Q10 handsets, while the impact of falling services revenue is adding more uncertainty.”

“However, our recent channel checks suggest that RIM's new models are selling well. We are forecasting Z10 sales to be in excess of 4m handsets (1m previous quarter) with Q10 sales just under 1m units. We have little sales evidence for Blackberry 7 models, which suggests that volumes may have fallen sharply. We have found some supporting evidence for RIM's improving situation in analysis by Kantar and gs.statcounter.com.”

“Interestingly, this evidence is stronger in the UK, one of the first markets where the Z10 and Q10 handsets were launched. So our base case scenario now assumes that the new handset sales have been faster than we previously assumed. We have increased this quarter's forecasts, with lower sales of older handsets (ASP $200) and higher sales of the new Z10 (ASP $500) and Q10 (ASP $550) models. This boosts our sales to $3.7bn (from $2.7bn) and increases our EPS for the quarter from $0.00 to $0.06. Longer term, we have boosted our handset sales assumptions, now going for almost 23m BB10 units this year (previously 16m) and this increases our EPS by 20% to $0.85 from $0.71 previously.”

“As we raise our forecasts, this also leads to an increase in our DCF target price from $13 to $17 (WACC 10.0%, LT margin 8%, LT growth 3%) for a projected 24% 12m TSR. (There is no 12-month forecast dividend.) We therefore upgrade our recommendation from Sell to Buy. As always with our forecasts, the key is the long-term operating margin: a 1% change in this margin changes our valuation by $1.70, all else being equal.”

Jefferies notes that good results from Blackberry suppliers in recent weeks bode well for the stock heading into earnings. They have a buy rating and a $22.00 price target on the stock. “We believe Jabil and Wistron are the two main manufacturers of BBRY's BB10 handsets. Last night Jabil reported strong results in its May Q for its High Velocity segment, which we believe to be primarily sales to BlackBerry: 24% Y/Y (+13% guidance), +34% Q/Q. Aug Q segment guidance of +15% Y/Y (implies -4% Q/Q) is solid and we expect substantial upside. Wistron reported revenues for the month of May of +16% M/M and +21% Y/Y. While BBRY is a ramping customer for Wistron, it was <10% of Wistron's revenues in 2012 with most of Wistron's business from notebooks, which are quite weak. Wistron's notebook ODM peers reported May sales of 0% M/M and -7% Y/Y, highlighting Wistron's outperformance.”

“We surveyed hundreds of Orange, Vodafone, and EE stores in the U.K. to determine inventory levels for the Z10 and the Q10. For the Z10, we found only 3% of stores to have 5+ units in stock, 78% of stores had 1-4 devices on hand, and 19% of stores were out of stock. For the Q10, we found 19% of stores to have 5+ units in stock, 79% of stores had between 1-4 devices on hand, and 2% of stores were out of stock. We find recent reports mentioning large inventory levels to be inconsistent with our checks.”

“Based on our FY14 estimates, our price target is 15x P/E, above peers' CY13 median of 12x due to BBRY's CY14 MDM potential. Risks: 1) BB10 fails; 2) current subscriber base declines more quickly than expected; 3) lack of interest in OS licensing by other handset OEMs.”

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.

Monday

Earnings: American Greetings (NYSE: AM), Gencorp (NYSE: GY), and Sonic (NASDAQ: SONC).

Economy:

• 10:30 am Dallas Fed survey
• 12:30 pm Dallas Fed President Richard Fisher

Tuesday

Earnings: Apollo Group (NASDAQ: APOL), Barnes and Noble (NYSE: BKS), Carnival Corp. (NYSE: CCL), Lennar Corp. (NYSE: LEN), and Walgreens (NYSE: WAG).

Economy:

• 08:30 am Durable goods
• 09:00 am S&P/Case-Shiller HPI
• 09:00 am FHFA HPI
• 10:00 am New home sales
• 10:00 am Consumer confidence
• 10:00 am Richmond Fed survey
• 01:00 pm $35 billion 2-year note auction

Wednesday

Earnings: Bed Bath and Beyond (NASDAQ: BBBY), General Mills (NYSE: GIS), Monsanto (NYSE: MON), and Progress Software (NASDAQ: PRGS).

Economy:

• 07:00 am Mortgage applications
• 08:30 am Real GDP Q1 (third)
• 01:00 pm $35 billion 5-year note auction

Thursday

Earnings: ConAgra Foods (NYSE: CAG), Nike (NYSE: NKE), Winnebago Industries (NYSE: WGO).

Economy:

• 08:30 am Initial claims
• 08:30 am Personal income and spending
• 10:00 am Pending home sales
• 10:30 am Fed Gov. Jerome Powell
• 10:30 am Atlanta Fed President Dennis Lockhart
• 11:00 am KC Fed survey
• 01:00 pm $29 billion 7-year note auction

Friday

Earnings: Finish Line (NASDAQ: FINL) and Blackberry (NASDAQ: BBRY).

Economy:

• 09:15 am Richmond Fed President Jeffrey Lacker
• 09:45 am Chicago PMI
• 09:55 am Consumer sentiment
• 12:00 pm Cleveland Fed President Sandra Pianalto
• 03:30 pm San Francisco Fed President John Williams

International Economic Reports in the Week Ahead

Monday - German IFO Business Climate Index

Tuesday - Italian retail sales.

Friday - Canadian GDP


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

Fed Speakers in the Week Ahead

Fed Chairman Ben Bernanke on Wednesday of the past week set off a firestorm across global markets when for the first time he offered a potential timeline for the Fed scaling back its easy money stimulus programs.

Specifically, Bernanke said if the economy continues to improve, as the Fed predicts; the central bank could begin tapering its $85 billion-a-month bond purchase program known as quantitative easing by the end of the year and wrap it up by mid-2014.

Bernanke tried to be his usual cagey self, saying tapering would only occur if the Fed’s economic forecasts lived up to their rosy projections and that nothing was written in stone. But markets sold off anyway.

Investors will undoubtedly be looking for additional clarity from Fed members in the week ahead.

On Monday Dallas Fed President Richard Fisher, a vocal policy and inflation hawk who has called for tapering sooner rather than later, is speaking on monetary policy in London; on Wednesday Minneapolis Fed President Narayana Kocherlakota will give a speech on monetary policy to the Society for Economic Dynamics in Seoul; on Thursday Atlanta Fed President Dennis Lockhart will give a speech on the economic outlook to the Kiwanis Club in Marietta, Georgia; and on Friday Richmond Fed President Jeffrey Lacker will give a speech on the economic outlook in West Virginia. Also scheduled to speak Friday are Cleveland Fed President Sandra Pianalto and San Francisco Fed President John Williams.

Regardless of the material offered in their speeches, these Fed members will undoubtedly be pressed on the specifics of a Fed pullback and how that wind-down will impact the broader markets.


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Expectations in the Week Ahead!

“WARNING SIGNS IN THE WEEK AHEAD FOR INVESTORS”

With the Fed putting the market on notice that it will be weaned from easy money, possibly beginning before long, investors are going to look at the broad picture, which has plenty of warning signs. Economic growth remains spotty, Chinese credit markets are showing stress and interest rates are on the rise.

One reason for equity investors to worry is the second-quarter earnings outlook. Earnings warnings from companies for the second quarter outnumber positive outlooks by 6.5 to 1, the most negative ratio since the first quarter of 2001.

Investors say the impact of Washington's automatic federal spending cuts, known as sequester, is part of the cause.

The sequester has already had an impact on technology companies, and higher tax rates that took effect earlier this year, have hurt consumer businesses.

Among the sectors with the worst outlooks for the second quarter, consumer discretionaries top the list, with 21 warnings and just two positive outlooks. Technology was another, with 27 warnings and 6 positive outlooks.

Therefore, the quarter ahead will have the most negative impact from the sequester – and combined with the tapering of QE, it could further dampen market sentiment, so we could be in for a little further softness in the equity market for a couple of months.

Forecasts for S&P 500 earnings in the second quarter have declined sharply, from an April 1 forecast of 6.1 percent growth to this past week's forecast of 3.2 percent growth.

If second-quarter earnings come in as forecast, they would mark a drop from the first quarter's 5.4 percent increase in earnings. However, estimates tend to start out high, and then get cut as the earnings period nears. Then, typically, companies surpass the lowered forecasts.

Banks, which are sensitive to interest rate changes, will be among the earliest companies to report. U.S. Treasuries yields rose to the highest in 22 months as a result of worries about the Fed's cutting back its monthly purchases of bonds. While the reduced stimulus could help if it boosts net interest margins, there are concerns that trading losses could hit some of the biggest banks.

Earnings projections for the rest of the year are better, with third-quarter growth forecast to rise 8.7 percent and fourth-quarter 13.1 percent, according to Thomson Reuters data.

If the Fed's expectations are correct and the economic data show strength, they will serve as a tailwind for stocks.

As previously mentioned, (Fed) tapering should be a vote of confidence in the market, which should be good news overall!

Despite the past week's 2.1 percent loss, the S&P 500 has risen 11.7 percent for the year without a major correction.

Sentiment Effect in the Week Ahead

Though the latest sentiment readings were taken before last Thursday's plunge, both individual investors and financial newsletter writers were more bullish last week. According to the American Association of Individual Investors (AAII), the bullish percentage rose to 37.4% from 33%, well above the April lows, when a light survey reflected only 19% bulls.

The number of bullish financial newsletter writers rose to 46.8%, from 43.8% the previous week. Only 21.8% are bearish, so more fear in the week ahead is needed to move both readings to levels characteristic with a market low.

The NYSE Composite in the Week Ahead

The weekly and daily NYSE Advance/Decline lines confirmed the recent highs, which is positive for the major trend. A/D line analysis says you should be buying, not selling.

The market is already getting pretty oversold, as the number of NYSE stocks above their 50-day MAs dropped from 54 the week before to around 35 this past week. At last November's lows, it was under 25, and in June 2012 was close to 12. Therefore, it can decline further in the week ahead.

The weekly chart of the NYSE Composite shows that the weekly Starc band was tested just five weeks ago. However, this past week's close was not far above the Starc- band at 8,858. The support that connects the highs in 2012 (line b) is now at 8,818.

To determine levels of support, it is helpful to look at the short-, intermediate-, and long-term 'Fibonacci Retracement’ levels. These levels will often overlap, which makes those levels more important.

Using the minor Fibonacci support levels that are calculated from the June 2012 lows -- for the NYSE, this 38.2% retracement support is at 8,757. But if you use the 2011 lows, the 38.2% support waits at 8,440. This coincides with the longer-term uptrend (line c), and is about 6% below current levels.

The weekly NYSE Advance/Decline (A/D) line confirmed the late May highs in the NYSE Composite, and is still holding above its WMA. It has further support (line d). It could still break this uptrend in the week ahead, but expect it to hold the highs from 2012.

The flat 20-week ’Exponential Moving Average’ (EMA) is now at 9,114, with further resistance at 9,217 and then 9,400.

The SPX Outlook

”….. June so far has been a tough month for stocks. The S&P is down around 2.5%, although it was able to close the week above the lows.

Since 1950, the S&P 500 has been down slightly in June, including a 5.2% loss in 2010 and an 8.55% slide in 2008. Over the past ten years, the best was 2012's gain of 3.99%......”

- The Past Week in the Stock Market – June 24, 2013

The SPX outlook for July looks a bit better. Here, the record is a bit better, as the S&P was up 34 years and down 29, with an average gain since 1950 of 0.8%. Since 2003, the best year was 2009, when we saw a 7.24% gain; 2004 was the worst, as the S&P lost 3.28%.

The seasonal trend (using data since 1930) shows that from the late June lows, the minor trend (line a), is generally upward until September, which is statistically the worst month of the year. Stocks generally peak in the middle of September -- the high of September 14, 2012!

Conclusion for the Week Ahead

Goldman Sachs analysts said last Friday that their top recommendation for 2013 is still to buy stocks and sell bonds.

They still expect the S&P500 index will close the year at 1,750, a rise of approximately 10% from today’s levels. However, that also stated that the median historical drawdown episodes suggest at some point during the next six months that the S&P 500 may decline to the mid-1,500s before rebounding to our year-end target.

Even though last week's headline should have been "more pain and more pain" for both bond- and stockholders, expect this to change as the year progresses. Stocks are likely to make new all-time highs before the end of the year.

However, the quarter end needs to be watched closely – the week ahead will be choppy and may continue this way for several weeks. This will provide ample attractive entry levels – particularly if you are “options trading”


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