Stocks were range bound last week. Every time the market started to rebound the rally was hammered by another negative headline. Investors were faced with the threat of war between North and South Korea as the north fired shots onto a disputed island. Meanwhile Ireland was on the verge of sinking financially and regulators across the EU have been scrambling to work up a rescue plan. Yet all in all it wasn't a bad week. The SOX semiconductor index rallied to a new relative high. The NASDAQ composite posted gains. The small cap Russell 2000 displayed some relative strength. The transportation sector is holding up. Yet financials and commodities have been suffering. Worries over a debt default in Europe have sent the euro currency plunging and the U.S. dollar has extended its rebound to three weeks in a row. That's putting pressure on commodities.
Early reports thus far are showing Black Friday was a success. Sales were better than last year but that's setting the bar pretty low. Spending has improved and in-store traffic was strong but it wasn't outstanding. Online sales might be the culprit. Many retailers started putting their Black Friday deals online and earlier than normal. Website traffic soared and "Cyber Monday" will probably be another record breaker this year! The RLX retail index rallied to new six-month highs ahead of Friday and is very close to resistance at the 500 level. I wouldn't be surprised to see some profit taking. This will fuel fears of a double top in the retail sector but as long as the RLX holds the trend of higher lows the bulls are in charge.
Weekly chart of the RLX retail index:
One of the biggest challenges for the market right now are the PIIGS countries in Europe. Earlier this year markets struggled with a potential debt default by Greece. This past week the focus was on Ireland and now the spotlight is growing hotter on Portugal. Fortunately by Saturday the press was reporting a bailout for Ireland was imminent. Finance ministers from the 16-nation eurozone were meeting in Brussels this Sunday. Authorities in the Irish government were suggesting they were close to an 85 billion euro ($115 billion) bailout for Ireland and the agreement could be reached before the markets opened on Monday. Naturally, if they can reach this agreement on an EU-IMF backed loan it would be bullish for the stock markets both in Europe and here in the states. If no agreement is reached then we're facing a lot more volatility.
I'm feeling optimistic and would like to think the action in North Korea is just saber rattling and we won't see any military action this year. At the same time EU regulators are getting quicker with their rescue packages and we should not see the multi-week torture that occurred over Greece's bailout. I'm hopeful that there will be a bailout for Ireland by Monday. That leaves U.S. economic data to move stocks. Fortunately next week's data should be positive. Tuesday will bring the Chicago PMI, the latest consumer confidence numbers, the Case-Shiller 20-city home price index. Wednesday will bring the weekly mortgage applications index, the Challenger planned layoff report, the ADP employment report, the National ISM manufacturing data, construction spending, vehicle sales, and the Fed's Beige book. Thursday will see the weekly jobless claims and pending home sales. Friday is the big day with the monthly non-farm payrolls (jobs) report. Plus, we'll see the ISM services and factory orders come out on Friday. Currently economists are expecting the jobs report to show +130,000 new jobs compared to +151,000 last month. Private employment is expected to grow +140K. There are whisper numbers that the headline job number will hit +175,000. Let's just hope the report doesn't disappoint.
Technically the S&P 500 index is bouncing around the same 1175-1200 range I outlined last week. As long as we don't get any nasty surprises then odds are pretty good that the S&P 500 will be able to breakout past the 1200 level by the end of the week.
Daily chart of the S&P 500 index:
In summary, I remain bullish on the market and expect positive numbers from most of the economic reports coming out this week. I suspect the Case-Shiller home price index will disappoint as will the pending home sales numbers. Everything else has a chance to surprise on the upside. Just cross your fingers that we don't hear any new insider-trading investigations or trading probes. The financials are already lagging the rest of the market and any more negative headlines could send them into a full-scale retreat.