Monster Week Ahead for Stocks, ETFs

This coming week brings significant developments that will set the course for global stock markets over the short-to-intermediate term as we face a deluge of economic and earnings reports, the long awaited European Summit and a potential Greek settlement (or not) that will have market moving impact.

On My Wall Street Radar

The chart of the S&P 500 (NYSERCA: SPY) paints an interesting, and mixed picture, this week.

Starting at the top, the uptrend has stalled at significant resistance levels near 1330 and now pulled back to about 1315.  The 50 day moving average is about to cross the 200 day average and form the “golden cross” which is a buying signal and statistically reliable portent of higher prices ahead over the next six to twelve months.  But in the lower panel, we see MACD declining as momentum wanes and about to cross to a negative position which is viewed as a short term “sell” signal.

So we have a market that has rallied sharply, is in a medium term uptrend above its 200 day moving average but susceptible to a short term pullback.  However, looking at significant support at about the 1280 level and again at 1255, a pullback should be in the 2-5% region, unless, of course, Greece, which we’ll discuss in a moment, descends into a “disorderly default.”

For the past week, the Dow Jones Industrial Average (NYSEARCA: DIA) lost 0.5% and is up 439 points or 3.6% year to date.  The S&P 500 (NYSERCA: SPY) declined marginally on Friday and is up 4.6% year to date, while the Nasdaq 100 (NYSEARCA: QQQ) is up 8% year to date.

Another stellar performer for the week was gold (NYSEARCA:GLD) which gained 4.1% and is up 9% year to date.

The Economic View From 35,000 Feet

Last week’s news was predominantly bullish as earnings continue to be relatively positive, and economic reports including the Richmond Fed, Durable Goods and unemployment trends were all solid. Fourth Quarter GDP was 2.8%, better than the Third Quarter’s 1.8%, but below projections of 3% which disappointed economy watchers who also are forecasting slower growth ahead.  The big news was the FOMC interest rate announcement and Dr. Bernanke press conference in which the Federal Reserve made it clear that highly accommodated monetary policies and quantitative easing remain the order of the day.

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As usual, Europe continues making headlines as the Greek debt negotiations are apparently nearing a settlement before this week’s European Union Summit. This ongoing crisis needs to be settled before a potential Greek default in March, and new developments pop up almost hourly as weekend reports suggest that Germany wants the European Union to take over management of the Greek budget which seems unlikely to fly in Athens where the yield on the one year bond is a nose-bleeder at 425%.  Christine Lagarde in Davos said that the IMF is ready to help out but that a bigger firewall is needed, and nobody seems to be discussing Portugal whose 10 year bond yield has doubled in a year to a  most unsustainable 15%.

This coming week we get earnings reports from important companies like UPS (UPS), Amazon (AMZN) and Exxon (XOM), along with major economic reports including consumer spending and Texas manufacturing on Monday, Case/Shiller housing, Chicago PMI and Consumer Confidence on Tuesday, ISM and Construction Spending on Wednesday, weekly employment reports on Thursday and Monthly Non Farm Payrolls, Unemployment, factory orders and ISM services on Friday.

Bottom line for stock and ETF investors: After a nice rally, major stock and ETF indexes appear due for some consolidation while Europe remains a potential powder keg.  The U.S. economy appears to be growing slowly while, again, Europe, faces potential recession due to ongoing “austerity.”  The week ahead will be a monster.