By Kate Gibson
The U.S. stock market could be in for some softening in the
weeks ahead if June follows its recent historical path, or Wall
Street could take its cues from a few technical indicators that
offer a more bullish signal.
On Friday, the major indexes finished up for the week after a
session of mild gains, which came along with the expiration of four
kinds of options and futures contracts.
"Historically the tendency for the markets is to be a little
weak following June expiration," said Randy Frederick, director of
trading and derivatives for Charles Schwab, who added that the
trend has persisted for the past half-dozen years.
On Friday, the Dow Jones Industrial Average (DJI) gained 16.47
points, or 0.2%, to 10,450.64, helping it to a second straight week
of firm gains. The blue chip average rose 2.4% for the week
following a 2.8% gain last week.
The S&P 500 Index (SPX) rose 1.47 points, or 0.1%, to
1,117.51 on Friday, up 2.4% from the week-ago close. Last week, the
broad index rose 2.5%.
The Nasdaq Composite (RIXF) on Friday ended at 2,309.80, up 2.64
points, or 0.1%, leaving it with a weekly gain of 1.8%. It rose
1.1% last week.
"It's the end of a quarter, and a lot of institutional
businesses tend to mark their returns on quarterly basis, leading
to the dreaded 'paint the tape' thing at the end of the quarter,"
said Frederick, referring to the succession of trades reported on
the ticker tape, which might lure unsuspecting investors in due to
the unusual trading volume.
A rally on Tuesday had both the S&P 500 and the Dow Jones
Industrial Average back above the 200-day moving average for the
first time since May 20, a positive indicator for market
technicians.
"That's the holy grail of support," said Frederick.
Gold finished the last week by finishing at a record for a
second day in a row, with jitters continuing over debt and currency
issues in Europe and the BP Plc (BP) oil spill in the Gulf of
Mexico.
"Things we can't control are still looming," said Frederick, who
believes that while the short-term picture may well involve a
pullback, "long term the recovery is still intact."
The bottom line
Estimated share-weighted earnings for the S&P 500 for the
second quarter on Friday stood at $183.6 billion, below last week's
$184.2 billion, according to John Butters at Thomson Reuters.
The earnings calendar for the week ahead has five S&P 500
companies reporting results on Tuesday, including three from the
technology sector: Adobe Systems Inc. (ADBE), Jabil Circuit Inc.
(JBL) and Red Hat Inc. (RHT).
Cruise line operator Carnival Corp. (CCL) and drug store
operator Walgreen Co. (WAG) also report results Tuesday.
On Wednesday, home-improvement retailer Bed Bath & Beyond
Inc. (BBBY) reports quarterly results, along with athletic shoe
maker Nike Inc. (NKE) and payroll company Paychex Inc. (PAYX).
Business software giant Oracle Corp. (ORCL) and home builder
Lennar Corp. (LEN) report on Thursday. Credit card company Discover
Financial Services (DFS) and tax preparer H&R Block Inc. (HRB)
also report on Thursday, along with McCormick & Co. Inc. (MKC),
ConAgra Food Inc. (CAG) and Darden Restaurants Inc. (DRI).
Economic data in the week ahead includes readings on home sales
and consumer sentiment.
And the Federal Reserve also holds a policy-setting meeting on
interest rates.
Time out
With much of the country's schools closed by mid-June,
professional investors often depart Wall Street for family
vacations, a trend that helped foster the adage 'Sell in May then
go away.'
That exodus on Wall Street has in recent weeks had the indexes
veering up and down but largely maintaining, said Frederick.
"We've had virtually sideways markets now going on for four
weeks straight," said Frederick. Friday's lackluster performance
marked a third day in a row of "near-zero progress -- basically we
stalled out," he said.
Other positive factors in the latest week had the Chicago Board
Option Exchange's Volatility Index (VIX) falling under its 50-day
moving average.
"The last time the VIX was at these levels, the S&P was
trading at 1,170.00, notes Art Hogan, chief market analyst at
Jefferies & Co.
"I was surprised to see the VIX get to the high 40s in mid-May,
but it has come down sharply in the last week or two," offered
Frederick.
Other factors for those looking for silver linings include
Europe's common currency, which in the week just ended found a
near-term level of stability for the first time since March 29,
helping commodities catch a bid and letting Wall Street "focus on
valuations that look attractive," Hogan said.
On Friday, the euro (CUR_EURUSD) rose above $1.24 but was more
recently at $1.2362.
Peter Boockvar, equity strategist at Miller Tabak compiling a
list of positive and negatives factors that influenced the
market.
Positives
* Successful 10-year and 30-year Spanish bond auctions
* Subsequent drop in yields in Spain after prior spike
* Talk that Banco Santander SA and Banco Bilbao Vizcaya
Argentaria are standouts in their stress tests
* Spanish IBEX index closed at highest since mid-May
* S&P 500 rallied above 200-day moving average
* Benign inflation readings in Producer Price Index and Consumer
Price Index
Negatives
* Housing starts-permits weak, tax-credit hangover
* National Association of Home Builders survey well below
expectations
* Philly Fed survey below expectations (New York in line)
* Initial jobless claims remain stubbornly high
* Shanghai index closes at a low of the week and just 2 points
from lowest since April 2009