Heavy Earnings News and Economic Data to Influence This Week's Trade

Good day! The market is going to be heavily influenced by another week packed full of earnings reports as well as some very hefty economic data. Stocks to watch on Monday include Verizon (VZ), which is expected to report first-quarter earnings of $0.62/share; Humana Inc. (HUM), which expected to report Q1 earnings of $0.48/share; and Tyson Inc. (TSN), which is expected to report a fiscal Q2 profit of $0.02/share. Visa (V) also reports on Monday and expected to report earnings of $0.45/share for fiscal Q2. ADM, BP, BNI, CFC, ODP, X, and VLO are top names which report on Tuesday.

The most notable event on the economic front will be Wednesday's Fed interest rate decision. It is anticipated by many that the Fed will once again lower interest rates, this time by a quarter percentage point to 2%, although there is no strong consensus that the the Fed will in fact make another cut at this time. Speculation is increasing that the Fed will hold off on further cuts for the time being as a result of the rather worrisome increase in the price of food, energy, and commodities. The continued decline in the value of the dollar is also widely cited as a reason for the Fed to halt rate cuts.

Early in the day on Wednesday, the Commerce Department will be releasing the first estimates for the first-quarter gross domestic product. Economists as a whole are expecting very little change in the overall numbers for this past quarter, with perhaps an exception in terms of some growth in exports and declines in residential and business investment.

On Thursday the Institute for Supply Management will be reporting its latest index reading. The monthly ISM index report is a national survey of the manufacturing sector which examines new orders, production, employment, deliveries, and inventories, and is one of the widely watched economic indicators. Overall, a reading over 50% indicates expansion, whereas a reading under 50% indicates contraction in the manufacturing sector. A reading in the low 40s tends to correspond to periods of recession. The ISM index for April is expected to drop to 48.0%, as compared to 48.6% in March. Since exports factor into the monthly reading, they will likely assist in holding that number above the low 40s for the time being.

The week will end with the latest unemployment data. During a recession, payrolls fall and unemployment levels rise. April marked the fourth month in a row that payrolls have declined. Job losses are expected to be most prevalent in manufacturing, construction, financials, and retail. Once again, strong exports are expected to inflate the numbers. The unemployment rate for April is expected to increase only slightly from 5.1% to 5.2%.

Going into Friday session I had been anticipating another day of back and forth activity without a strong intraday trend. Given the failed early upside breakout attempt the day before, I was particularly leery on the side of the bulls. The day began with very little difference between Thursday's closing and Friday's opening price levels in the major indices. Within the initial 15 minutes of trade the market held those levels. As the 9:15 ET correction period hit, however, the bears again regained control, continuing the selloff pattern which had began late in the prior session. This selloff continued into 10:00 ET.

At 10:00 ET the University of Michigan released its U.S. Consumer Sentiment index. It is currently at its lowest levels since 1982, falling from 69.5 in March to 62.6 in April. The data was no worse than had been expected. From 10:00 to 10:30 ET the indices corrected somewhat off their early morning lows. The 5 minute 20 period simple moving average served as resistance, but a 30 minute correction following 30 minutes of selling is typically not quite enough time to allow for the market catch its breath. The previous lows held as support and the indices fell into a base along those lows into the 11:00 ET correction period.

The downside continued at 11:00 ET, taking the indices to new intraday lows. This late morning breakdown brought them into the range from earlier in the week. I had been looking at the lower end of that range as support. The Nasdaq did make it back into the lower end of the range from Wednesday into Thursday morning, but the other indices held mid-range. The S&Ps had hit equal move support at that time on the morning's continuation when compared to the previous afternoon. This is a rather significant form of price support and the market was able to bounce off this level and back into the 5 minute 20 sma.

The shallower price retracement aided in the formation of a stronger late day reversal. It began with a large shift in momentum mid-day. The indices congested along the 5 minute 20 sma zone for two hours. The Nasdaq formed a double bottom on the 15 minute time frame and the market took off as the 14:00 ET correction period hit. This is a very common time of the day for major market moves to begin as well as end. The upside built on itself throughout the remainder of the afternoon with the Russell 2000 ($RUT) leading. The S&Ps and Dow followed, but the Nasdaq lagged.

The Russell 2k and S&P 5000 were able to make new highs on the session in the final hour of trade. The Dow Jones Ind. Ave. ($DJI) hit resistance at the morning highs with about 40 minutes of trade left. At this time the S&Ps had also ran into resistance at Thursday's highs and the Nasdaq Composite ($COMPX) was testing its open. All of these resistance zones hitting at once put a damper on the bullish sentiment and the buying stalled with the afternoon highs holding into the close.

The Dow ended the week higher by 0.4%. On Friday it gained 42.91 points, or 0.3%, and closed at 12,891.86. American Express Co. (AXP) was one of the top gainers after it reported a first-quarter loss that was less than had been anticipated. The S&P 500 closed higher on the week by 0.5%. It had been in negative territory, but the 9.02 point gain on Friday added 0.7%. It closed at 1,397.84. The Nasdaq Composite gained 0.8% on the week as a whole, but it closed lower on Friday by 0.2%, or 5.99 points, at 2,422.93. Leading sectors on Friday included energy, broker/dealers, and banking, while technology stocks led the decliners.

I think that we can continue to see the market step higher early this week. I expect that there will still be a great deal of overlap in price from one day to the next without the indices adding much difference between the current price levels and the 20 day sma. This is about 35-40 points on average in the Nasdaq and about 120 points in the Dow. A market which creeps higher can turn very quickly, so this is something that should be kept in mind given this scenario.

Dow Jones Industrial Average ($DJI)



S&P 500 ($SPX)



Nasdaq Composite ($COMPX)