Week's Landscape
Research for Online Investors

12/05/11

We are sending out Monday’s letter Sunday night to help you for the week.  Before the Asian markets open tonight, let’s look at what the next week holds.  Tomorrow we get British Services PMI and European Retail Sales.  The British Services Purchasing Manager’s Index is expected to decline over the month ago figures but stay above 50.0 at 50.5.  This is important as a number under 50.0 means contraction, like we saw out of China last week.

European Retail Sales are expected to improve by 0.1%. This is not much growth but better than last month’s minus 0.6% The ISM Non-Manufacturing number for the U.S. will be released after market open, and is expected to show growth at 53.4 over last month’s 52.9.

The Reserve Bank of Australia is expected to cut interest rates Tuesday morning to 4.25% from 4.5%.  We also get German Factory Order numbers on Tuesday and European GDP.  Factory orders are expected to be up 1.0% and GDP up by 0.2% On Thursday, the European Central Bank (ECB) is expected to cut interest rates to 1.0%.

Friday, Eurozone leaders will meet to discuss a German/French proposal to tighten the fiscal controls on eurozone countries that need support from the ECB and other eurozone countries through the European Financial Stability Facility (EFSF).

What does this mean for the market in the week ahead?  Here is a chart of the S&P 500.

We have drawn in the descending resistance line along the highs for the last five months and the ascending support line along the lows in the market for the last two months. The Fibonacci retracement lines are also drawn in for your reference.

The market is full of optimism from the Federal Reserve’s action last week.  We expect this to continue into Monday.  The only disconcerting note on Friday’s consolidation was the lack of buying in the last hour.

We are trading the market in SwingTrader to move higher early in the week. Absent headline impacts, we expect the market to break through the upper trend line. This opens us for a charge to 1275 then 1284 (highs from 11/08 and 10/27 respectively). That would be enough, but we think there is a chance for even more upside if the bulls can inspire some volume.

From there we are not so positive.  We think the market is buying a rumor of resolution to the eurozone debt problems, and will probably be disappointed in the remedy.

We could easily be wrong, but we like to “game” the week, then act on our thesis.  Once the markets are open, we adjust our plan and our actions.  As investors and traders we are going to play long but scared.  We are going to sell into strength early in the week.  Don’t be a hero, but don’t sell them too early.  There might be a nice run ahead of us, but we think it ends when the market faces disappointment.

If we get a breakout above the trend line, then the following leg down could be harder (past the lower trend line). Not pleasant, but that is how we see the next week or two.

Hold on.

John

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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