“July option expiration is Friday and over the past decade, the third Friday in July has been bearish 70% of the time. In 2002, the Dow lost nearly 5%, falling from 8,409 to 8,109. In 2010, the blue-chips lost 2.5% after dropping from 10,359 to 10,097.
The Dow closed at 12,777 on Friday. If we factor in a 3% drop from current levels it would equate to a decline of 400 points. The Dow made a 200+ point swing intraday last week so a 3% move overall this week is entirely possible. This would put the blue-chips right at the 12,350 level and at the point of a possible trend change on a move lower. A 3% move higher would get the Dow to the 13,200 level and at a possible breakout point.
The other wild-card for the week will be Bernanke who will be speaking to the zombies on Tuesday (and again on Wednesday) about the recent FOMC Minutes. If you recall, Wall Street was a little disappointed following last Wednesday’s Fed statement and if Big Ben mumbles those same thoughts, the market will tank. If by chance, he hints at some type of QE3 or stimulus plan, the bulls could be running again.
The charts are showing a major move is coming and the earnings cycle will be picking up steam this week. Add in Friday’s July option expiration and the makings are there for some explosive moves this week. The 2-month long trading range we have been in could be on the verge of expanding so it will be interesting to see how the week unfolds.” (from 7/15/2012 Weekly Wrap/ Monday Morning Outlook)…
Wall Street came into the week with all eyes on earnings and Ben Bernanke. The bears got off to a good start on Monday and into Tuesday as Big Ben started talking about the economy, QE3, and the recent LIBOR scandal. The Fed Chairman seemed nervous but subdued as he dodged questions and gave vague answers on his first day of testimony but the bulls were able to rebound and pushed resistance into the close. The intraday 200-point swing in the Dow was a clue the bulls were going to make another push to the top of the trading range.
Wednesday’s action was all about Intel (INTC, $25.52, down $0.54) and their numbers which beat Wall Street’s estimates. Mr. Bernanke was back in action and continued to say the Fed stood ready to “do something” if the economy falters but would not provide specific clues. This teased the bulls but the fact that he was hinting of possible QE3 relief was enough to keep the momentum going. After the close, International Business Machines (IBM, $192.45, down $2.89) reported a fantastic quarter and raised estimates which carried over into Thursday’s action.
As expected, the bulls were able to push the top of the current trading ranges as the market went out near its highs for the day. They got a bonus package after the bell when Microsoft (MSFT, $30.12, down $0.55) and Google (GOOG, $610.82, up $17.76) announced better-than-expected quarterly results but futures actually traded lower Thursday evening which was another good clue the market could be peaking.
By Friday’s open, futures had gotten progressively worse on some fresh Spain worries which lead to a lower open. As the day progressed, there was no buying the dips as the bears pushed support which was prior resistance for the bulls. It seems traders were a little nervous being long over the weekend and the move pushed the market right back into its trading range following Thursday’s fluff.
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