Weekly Outlook – S&P and Top Components
For the first time in several months, the S&P futures declined significantly after a period of consolidation. As discussed last week, the multiple closes from 1452-1454 from September 17th-21st, were an indication the index was destined to move.
After trading above the crucial level early in the week, there was no follow through to the upside. Finally, on Wednesday the index pierced through the major support at 1444 and down it went to 1424. From that level, the index bounced 20 points, only to be turned back around the prior support level of 1444.
On Friday, fund managers were only too eager to lock-in some profits and the index retreated to close at 1434.25, almost the same level that the index closed the day before the announcement of QE3 which was 1432.50. Now that the euphoria from the announcement has faded, the market will now focus on other fundamentals and technicals to determine its next move.
Since the fundamentals can change overnight, what are the technicals telling us? First of all, the index must rally above the 1444 level and stay there to continue on its merry way north. If not, and the index breaches the weekly low of 1424, it may be destined to test the major support area around the 1400 level that was the foundation for the rally up to 1468.
The fundamentals of Apple (NASDAQ:AAPL) are starting to weaken. After sending my wife the wrong color iPhone 5 last week, strife at a production facility in China, and a revelation of the flaws in the map application, AAPL fell nearly 33 points last week. Now the question remains, can Apple stay above the low made on the day of the iPhone 5 rollout at 656.00? Apple bulls better hope that it does, since there looks to be only minor support at 648 and no major support until 627.75. For Apple to make another assault on the 700 handle, it must clear the double top from Thursday (682.17) and Friday (681.11).
Exxon-Mobil (NYSE:XOM) is allergic to the 92 handle. In five of the previous six trading sessions, XOM has traded in that handle, but did not close above it on even one occasion. Now that the issue has made three consecutive lows between 90.93 and 91.19, major support has been identified as well at 91. Therefore, if 91 holds, XOM just may sneak back into the 92 handle and test the 52 week and multi-year high at 92.57. If not, XOM may be destined to test major support at the four consecutive lows from September 7th-12th between 89.40-89.55.
How frustrated must owners of Microsoft (NASDAQ:MSFT) be? After hardly participating in the market’s recent rally to multi-year highs, MSFT has been a willing participant on any downside action. It gave back over a point last week to close at 29.76, this after announcing a dividend hike during the prior week. Closing two cents off the low of the day is not a good indication for Monday’s trading. If the August 3rd low of 29.48 cannot reverse the decline, MSFT may be heading towards the August 2nd low of 28.97. Expect any rallies over 30, especially from Friday’s high (30.26) up to Thursday’s high (30.40), to be stacked with large institutional offers.
International Business Machines (NYSE:IBM) was in its own little world on Friday. While a majority of stocks declined, IBM tacked on over a point and a half to close at 207.45. Perhaps a few fund managers felt a burning desire to have IBM on the books for the end of the quarter. At this level, IBM is a little more than three points away from its all time high 210.69. However, it first must contend with the double top from May 1st (208.93) and May 3rd (208.92) along the way. On any pullback, there may be minor support at Friday’s low (205.31), but no major support until the double bottom from Wednesday (203.90) and Thursday (204.14) lows.
This week, General Electric (NYSE:GE) reached its highest level since October 2008 at 22.96. Bolstered by positive comments from its CEO Jeffrey Immelt, while speaking to analysts, those comments sparked a 63 cent rally on Thursday. Follow through on Friday had GE banging on the door of 23, but the large institutional sell orders at that level were fodder for the High Frequency Traders who stepped in ahead of that level and nudged GE back down to close at 22.71. The double close area of 22.71-22.73 should determine whether or not GE makes another attempt to breach 23 or retreats to test the double bottom from the Wednesday (22.07) and Thursday (22.13) lows.
Similar to the 92 handle in Exxon-Mobil, the 118 handle has stymied rallies in Chevron Corporation (NYSE:CVX). After making a new all time high at 118.53 one week ago Friday, CVX made two solid attempts to breach that level on Monday (118.49) and Tuesday (118.50). CVX has traded above 118 a total of six times and has not been able to post one close in that handle. On the downside, CVX has put in place a double bottom from the Wednesday (116.15) and Friday (116.16) lows that may provide minor support. Another minor support level is the September 21st low of 115.50 and major support may found at the series of lows from September 9th-13th at 114-114.12.
After missing the 52 week high (38.58) by one cent on Tuesday, AT&T fell prey to some profit-taking. The remainder of the week it put in place three lower highs and three lower lows, with T closing on Friday at 37.70, only a dime off its lows for the week at 37.60. That low matches the September 20th low and may be a key level to determine whether or not the top is in for now in T. Expect sellers to realign themselves starting at 37.97 (Friday high) and throughout the 38 handle up to the recent high of 38.58. If Friday’s low is taken out, T may not find major support until the double bottom from September 14th (37.05) and September 17th (37.11).
The consolidation period in Johnson&Johnson (NYSE:JNJ) may be nearing an end. After sprinting to 69.75 on August 1st, JNJ made another run at that level on Tuesday but stalled at 69.65. For the remainder of the week, JNJ posted three lower highs, and three lower lows. More importantly, JNJ has had six of its previous seven closes between 68.91-69.06 and Friday’s high (69.04) was at the top of that range. Therefore, it is critical for JNJ to regain the 69 handle or it may be destined to test the minor support at 68-68.08 (five consecutive lows September 13th-18th) and the major support at the August 20th low of 66.85.
Wells Fargo (NYSE:WFC) has traded in only a 57 cent range over the last three trading sessions. The issue has found major resistance from 34.80-34.86, which encompasses the highs from the last three trading sessions. Therefore, until WFC can close above that area, there may be some continued selling pressure. The good news for owners of WFC is that it has made two higher lows after reaching 34.29 on Wednesday. The bad news is that WFC settled at 34.53 on Friday, just 6 cents off its low of the day. Beneath the 34.29 low, there may be some minor support at the September 11th low of 34.10, but the there may not be any major support until the double bottom from September 4th (33.73) and September 5th (33.74).
Another range bound stock closing just off its low of the day on Friday is Coca-Cola (NYSE:KO). For the entire week, KO traded between 37.66 and 38.35. Trading near the lower end of the range early in the week, then stalling near the upper end of the range on Thursday and Friday. At this time, KO has a double bottom in place from the Thursday and Friday lows of 37.90. Since it settled only 3 cents off the low at 37.93, KO may be poised to test the major support at the September 12th low of 37.51. The 38.19-38.35 area, which encompasses the previous five highs for KO may provide major resistance in the upcoming week.
This week, the index was unable to shake-off the post quadruple expiration blues and experienced a modest decline. But last week’s action is certainly not enough to conclude that the index has put a major top in place at 1468. However, much of the recent rally was the result of Apple’s monster iPhone 5 run, and the announcement of QE3. Now that those events have passed and both the index and Apple have returned to nearly the same levels they were prior to those events, what will be the next driver for the market? As long as the index holds the weekly low of 1424 and AAPL holds 656, the bulls still have ample time to find one.
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