Big Earnings and Bernanke Press Conference in Trading Week Ahead

An unprecedented week lies ahead as the Fed Chairman holds the first ever press conference after a Fed Open Market Committee meeting on Wednesday.  This, followed by the 1Q GDP report on Thursday, sets up what will surely be an exciting week.

On My Radar
On a technical basis, we remain locked in the same trading range that we have seen since the beginning of the year, with the major indexes now back at the high end of that range.

courtesy of StockCharts.com

Above, the Point and Figure Chart shows us right at the upper level of resistance but still with a bearish price objective of 1160.  Overhead resistance is at the 1330-1340 level with support at 1300 within the longer term uptrend that would take a decline down to 1070 to break.

It was a very choppy week with Standard and Poor’s (NYSE:MHP) downgrade of their outlook on U.S. debt from stable to negative that was immediately offset by mostly positive earnings reports.

The big events for this week will be the press conference on Wednesday and the GDP estimate on Thursday which will likely set the tone going forward into spring and summer.

Seasonality is now working against the markets as we’ve entered the “sell in May and go away” period wherein the market historically moves in a sideways to downward fashion until about Halloween.

The View From 35,000 Feet

Volatility was the name of the game last week and we can probably expect more of the same this week.

Gold (GLD reached record highs (Disclosure: We hold a position in GLD) while the dollar continued declining towards lows last seen at the depths of the financial crisis in 2008.

The big news was the downgrade by Standard and Poor’s and positive earnings from Apple (NASDAQ:AAPL) (Apple’s Earnings Cheat Sheet) and General Electric (NYSE:GE) (General Electric’s Earnings Cheat Sheet).

This week earnings continue in earnest with 180 reports from S&P 500 (NYSE:SPY) companies including bellwethers Amazon (NASDAQ:AMZN), Coca Cola (NYSE:KO), eBay (NASDAQ:EBAY) and Starbucks (NASDAQ:SBUX) on Tuesday, and Microsoft (NASDAQ:MSFT) and Exxon (NYSE:XOM) on Wednesday.

Last week’s economic reports were mixed, as they have been in recent weeks.

Positive:

+ April Housing Starts were up, although still at depressed levels

+  March Building Permits; up

+  March Existing Home Sales; up

+  Initial jobless claims down from previous week but still above 400,000/week

Negative:

–  April Philadelphia Fed Report down big to 18.5 from previous 43.4

–  MarchLeading Indicators declined to 0.4 from 1.0

–  February Housing Prices declined -1.6% from previous -1.0%

What It All Means

We now see economic reports pointing to a slowdown ahead, with unemployment remaining stubbornly high and now manufacturing slowing down with this week’s big drop in the Philly Fed report and housing in what surely looks like a double dip with prices continuing to decline and sales activities at historic lows.

Offsetting the negatives, we have overall solid earnings, particularly in technology, largely driven by productivity and sales in the emerging world, and, of course, we have “Big Ben” and his friends with their printing press at the ready.

However, the Fed is increasingly finds itself between the old proverbial rock and a hard place as the deficit hawks and ratings agencies are starting to circle overhead and inflationary pressures gather around the world.

The Week Ahead

Major Issues/Themes: Wednesday and Thursday will be the big days with the Fed press conference and 1st Quarter GDP, along with the slew of earnings reports coming all week long.

Monday: March New Home Sales

Tuesday: February Case/Shiller Home Price Index, April Consumer Credit

Wednesday: March Durable Goods, FOMC announcement/press conference

Thursday: Initial Unemployment Claims, Continuing Claims, 1st Quarter GDP Estimate, March Pending Home Sales

Friday: March Personal Income, March Personal Spending, April Chicago PMI, April Michigan Sentiment

Sector Spotlight

Leaders: (NYSE:SLV) iShares Silver (NYSE:IEZ) Oil Services

Laggards: (NYSE:BAL) Cotton (NYSE:EGPT) Egypt

Disclosure: No positions in ETFs or stocks discussed in this article.

John Nyaradi is the author of Super Sectors: How To Outsmart the Markets Using Sector Rotation and ETFs

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