Planning for the Week Ahead

Desk Calendar Any successful trader or business man (woman), knows that planning ahead and preparing for upcoming events and potential threats to your investments is key to preventing catastrophe. The first thing every investor needs to do is to maintain a general awareness of upcoming events that are already announced. In a world full of uncertainty, at least we get to know a little bit about the future. First off, major economic data coming up this week includes:

Existing home sales Tuesday (Expectations for 6.23 million)

New Home Sales, FOMC statement and rate decision Wednesday (Expectations for 435k homes and minimal verbiage change from the FED with no move in interest rates, respectively.)

Core Durable Goods and Unemployment claims out Thursday (Expectations for a 1.1% rise in durable goods orders and 461,000 in weekly initial unemployment claims.)

Friday brings the final reading on quarterly GDP as well as the University of Michigan’s consumer sentiments revisions. Both numbers are expected to be unrevised from their last readings.

As I mentioned early last week, earnings season is upon us, but will not be coming full force until the second week of July. I also mentioned early Friday that expiration Friday (quadruple witching) has really been a non-event as of late. This was confirmed by the modest bullish moves we saw on Friday.

Of course, I can’t predict market movements, nor can I tell you what stocks will be up or down. But if we look at how the market has responded to data in the past, both positive and negative, we can form educated opinions on potential future reactions. This week should be an important one when it comes to macro financial data and the numbers this week are sure to at least create some elevated volatility. The weekly unemployment claims numbers, though volatile and sometimes out of sync with the actual monthly non-farm payroll data, have been painting a grim picture for the past 11 weeks, with the actual numbers coming in above expectations.

Though some analysts believe the U.S. can climb out of recession and continue to grow without strong employment (due to shifts in commerce), most believe – and history tells us –that continued high unemployment is NOT good for the stock market. If you compare the upper chart, the unemployment rate, to a chart of the SPDR Dow Jones Industrial Average ETF (DIA), you’ll notice the somewhat negative correlation between the two when the unemployment rate starts to move. In late 2001 through 2003, when unemployment is on the rise, you’ll notice the drop in the Dow. The market doesn’t mind a little unemployment when other coincident economic indicators are looking strong. The issue is that the unemployment rate is considered a lagging economic indicator and when the market is on the rise, but the unemployment rate doesn’t seem to be falling or moving to a desirable level, the stock market, which is leading, may snap back. So as we try to move higher in the marketplace now, eyes are on earnings, unemployment, and global economic health.

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DIA since June 2000

Speaking of global health, the head of the European Central Bank, Jean-Claude Trichet, will be offering commentary on Monday at 10:30 a.m. ET, which could offer more insight into the health/progress of the European Union and the Euro. He is expected to continue to press for more fiscal surveillance and oversight.

Stay on top of your data and don’t forget to hedge… :-)

Photo Credit: skyseeker

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