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Weekly Outlook - Despite Google, Earnings Still Normal

Believe it or not, it actually wasn’t a bad week - Friday ruined what would have otherwise been a winning week, thanks to the worst possible news at the worst possible time (Google’s shortfall, and the Citigroup and Bank of America’s declining revenue).

Will this carry through into this week? Will this week’s slew of real estate data just spur the selling even further, trumping last week’s decent economic numbers? For that matter, will this week’s earnings data make all the other information irrelevant? Answers are below.

Economic Calendar

It was a heavy week on the economic data front, and though the market didn’t act so on Friday, there was at least some encouraging news.

The biggest alarm bell was sounded by the second monthly dip in retail sales - is the consumer really tightening his/her purse strings to the point that the economic rebound is stalling? They did so by 0.1% last month (or by -0.5% when factoring in auto sales).

On the other hand, the new unemployment claims number finally broke a long-standing streak of scores above 440K; they moved to 429K a week ago. Continuing claims haven’t followed suit yet, but bear in mind the actual unemployment rate has fallen from a peak of 10.2% in October to the current level of 9.5%. So, it’s not been a completely jobless recovery yet. It will be interesting to see if a downtrend is developing on the weekly claims front.

Friday’s implosion was at least partially kick-started by a sharp drop in the Michigan Sentiment Survey, from 76.0 to 66.5. The number lined up with a similar drop in the Conference Board’s consumer confidence figure for June. These numbers tend to mirror long-term market trends, so though it’s still a little too soon to jump to conclusions, it’s not too soon to start keeping close tabs on this data.

Economic Calendar

As for the coming week, much less data in on the schedule, though some market-movers are in the queue….. all on the real estate front. The National Homebuilders Index will be updated today, permits and starts for June will be unveiled on Tuesday, while existing home sales will be announced on Thursday (along with new and ongoing claims). The forecasted numbers all suggest the same thing though - the real estate market is again weakening rather than expanding.

NASDAQ Composite

Just to keep things fresh, this week we’re going to take a look at a chart of the NASDAQ rather than the S&P 500; it’s a little more telling anyway.

The bad news is plentiful, the biggest of which is the fact that the composite is back under all its key moving averages….. the 20, 50, 100, and 200-day moving average lines. In fact, it was the combined 50 and 200 day lines that halted the advance last week, and ultimately sent the NASDAQ careening again.

Moreover, a string of lower highs and lower lows since the April peak has new become clear. When will the pattern end? That’s the point - we have no specific reason to think it’s going to until we actually see a higher high, but that may not happen for a long time.

The good news is a little tougher to find, but it does exist.

The ‘best’ good news is the fact that - despite a major selloff in terms of percentages - Friday’s dip wasn’t really a high-volume wave of selling. As such, it doesn’t necessarily represent the majority opinion.

Also, the lower Bollinger band (50-day) is still intact as a support line. It’s at 2090 right now, which leaves room for the NAADAQ Composite to fall further, but interestingly, at least that lower Bollinger band is pointed upward now. (It’s admittedly a subtle nuance, but it represents a slightly-stronger support potential all the same.)

Bottom line? Let’s assume the Composite is trapped between 2090 and 2244 for the time being. That leaves room for a small downside trade, but the trend we really want to tap into will be above or below those boundary lines.

NASDAQ Composite

Earnings Calendar

Despite Google falling short of estimates, this earnings season so far has been a good one…. with more ‘beats’ than misses. In fact, since Alcoa kicked things off early last week, 69% of reporting companies have topped estimates, while 20% have fallen short (and 10% met estimates). That’s the normal beat/miss rate, so technically speaking, there’s really nothing to complain about in the aggregate.

That said, one should also keep in mind that just because Google fell short of the expected $6.52 per share by turning in only $6.45 per share, that doesn’t mean the company earnings are shrinking. Quite the contrary. Google still increased earnings, from $5.36 in Q2 of 2009, to that $6.45 number….. investors just chose to see the glass as half full.

The question is, which is more important in the long run? Hitting analyst estimates (which may be off base), or growing earnings?

Anyway, here are this week’s major earnings announcements.

Earnings Calendar

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More Stories By James Brumley

James Brumley is a freelance writer and registered investment advisor. He began his career as a broker with a major Wall Street firm, where fundamentals and long-term holding periods were core strategies. After that, he switched gears completely, becoming an analyst at a short-term trading newsletter that focused on technical analysis. He now manages client money using the best of both philosophies. His company, Bluegrass Portfolio Management, offers investors an opportunity to reap superior returns with minimized risk.