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WEEKLY OUTLOOK, Jan. 10
By Jody Osborne, Optionetics.com
1/10/2005 7:00:00 AM
http://optionetics.com/articles/article_full.asp?idNo=11727
The first week of 2005 wasn’t exactly kind to the bulls, but this isn’t necessarily a preview of the year to come. Since 1940, when the first week of January has been bearish, the rest of the month has been bullish. In fact, the Dow ($INDU) has gained ground on the year 15 out of 19 times. This means that how the month fares is much more important than how the first week turns out. This is a good thing, as this past week’s results were anything but stellar.
The Dow fell 1.66 percent this past week, finishing at 10,603.96. The S&P 500 ($SPX) gave up 2.12 percent to 1,186.19. The worst performance came from the Nasdaq ($COMPQ), which fell 3.99 percent to close at 2,088.61. Friday’s jobs report, which fell just shy of expectations, was actually a positive in the early going for stocks. However, caution seems to be the word to start the year.
Economic news will be less of a factor this week, with fewer reports to digest. Nonetheless, there are a few that'll be released that could impact trading. The list below details the reports on tap this week:
Monday: Wholesale Trade
Tuesday: Chain Store Sales Snapshot
Wednesday: MBA Mortgage Applications Survey, EIA Petroleum Status Report, International Trade, Treasury Budget
Thursday: Jobless Claims, import and Export Prices, Retail Sales
Friday: Business Inventories, Producer Price Index, Industrial Production
Friday will once again be the big day, with attention focusing on the PPI and industrial production. Ironically, though producer prices are not wildly climbing—with a gain of 0.1 percent expected in December—there's still a lot of concern about inflation. The Fed continues to voice concerns while fears that interest rates will be hiked at an accelerated rate run rampant.
Though the bulk of earnings reports will not start until the following week, there will be some key reports this week to pay attention to. Alcoa (AA) kicks off the season Monday, but Intel (INTC) will report on Tuesday and this could have market wide ramifications. Apple Computer (AAPL) and Sun Microsystems (SUNW) will also announce this week as well.
Preannouncement warnings are below the historic average of 1.9 to 1.0, which is a positive sign. However, expectations are for earnings growth to come in at 15.3 percent, which is down from the initial 15.5 percent expected at the beginning of the quarter. As usual, it will be the outlook from corporate America that will drive trading more than the results achieved in the fourth quarter.
The fear indices didn’t see too much movement this past week, but remain safely off their 52-week lows. The CBOE Market Volatility Index ($VIX) rose just 1.5 percent to finish the week at 13.49. The Nasdaq Volatility Index ($VXN) tacked on 3.07 percent to 19.15. The 52-week lows for these indices sit at 11.14 and 16.44 respectively. This leaves room for further declines, but this week might struggle to see strong bullish movement.
With concerns about oil prices and inflation, as well as uncertainty with fourth quarter earnings results; traders might be cautious this week. If economic news is positive, but shows little signs of inflation, maybe traders will feel a little less concerned about what the Fed will do at their next FOMC meeting scheduled for February 1 and 2.
Overall, there still isn’t a reason to turn bullish on stocks, but there could be some sideways trading before stronger sessions develop. Profit taking ahas been strong to start the year and understandably so considering the gains achieved in December. Option traders can make profits in any type of market, so just let your trades take what the market gives.
Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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