By Rodrigo Campos
NEW YORK Feb 16 With economic data being
shoveled aside like snow and earnings season winding down, U.S.
stock investors could zero in this week on the Fed's view of the
economy and technical analysis charts as the S&P 500 nears its
The Fed writes the script for Wall Street. The minutes of
the Federal Reserve's most recent meeting of its policy-setting
committee will be published on Wednesday, the second trading day
of a holiday-shortened week in the United States. The U.S. stock
market will be closed on Monday for Presidents Day. Wall Street
will resume trading on Tuesday.
Investor interest in the minutes of the Jan. 28-29 meeting
will focus on discussions surrounding the Fed's forward
guidance. The U.S. central bank's 6.5 percent unemployment
threshold for considering an interest-rate increase seems stale
with the jobless rate now at 6.6 percent.
The Fed doesn't expect to start raising rates until at least
late next year. So Wall Street will concentrate on the Fed's
maneuvering over how to adjust this guidance, which is
supportive of higher equity prices.
"We want to see any discussion on the language moving away
from the thresholds," said Quincy Krosby, market strategist at
Prudential Financial in Newark, New Jersey. "It's clear the
thresholds are boxing them in.
"The market wants to hear they are flexible regarding data
that perhaps continues to soften," she said. "Any sense of what
it would take for them to pause the tapering will be important."
Fed Chair Janet Yellen said in her first congressional
testimony last week that "unseasonably cold temperatures ... may
be affecting economic activity in the job market and elsewhere,"
giving traders a reason to dismiss a recent soft patch of
In December, the Fed announced that it would begin to shrink
the amount it spends monthly on asset purchases in its stimulus
program to support the economy. The beginning of the end of the
stimulus shifted market focus to fundamentals and economic data.
Traditionally market-moving numbers this week include U.S.
housing starts on Wednesday and existing home sales on Friday,
as well as producer and consumer price inflation on Wednesday
and Thursday, respectively.
If the recent pattern continues, however, any weakness in
the numbers will be disregarded, blamed on excessive cold
weather, and the market will move on.
"The market is getting used to the bad weather, factoring it
in," said John Canally, investment strategist and economist for
LPL Financial in Boston. "But the story is, it might get to
April, when we get the March data, that we have a return to what
the underlying strength of the economy looks like, and then that
might be overstated."
SOMETHING'S GOT TO GIVE
In this four-day trading week, technical analysis could fill
the vacuum left by the uncertainty about how economic numbers
reflect the underlying strength of the U.S. economy.
Last week, the S&P 500 traded above its 50-day moving
average on Tuesday for the first time since Jan. 24. That level,
now near 1,811, served as support on a first test shortly after
the open on Thursday.
That curve is again trending higher. The S&P 500's trading
range could tighten this week as it approaches the 1,850 area,
near the intraday and closing record highs set in mid-January.
"The 1,850 area is very important. It's safe to say there
will be a good amount of sell interest up there," said Frank
Cappelleri, equity sales trader and market technician at
Instinet in New York.
He added, however, that "you could make the argument that
there were a lot of people ready to sell near the 50-day moving
average a few days ago, and the market just blew past it."
The market's momentum is on the upside, coming off the best
two-week performance of the year. Unless stocks trade relatively
flat for the week, support or resistance will have to give.
For the past week, the Dow Jones industrial average
and S&P 500 rose 2.3 percent each, and the Nasdaq
Composite climbed 2.9 percent. It was the first
back-to-back weekly gain for the three major indexes this year.
"Positive momentum came back into the picture, and people
who missed the upturn put some money to work," Cappelleri said.
"Indicators that were depressed have turned around, neutralized
and are now back to overbought."
In the search for more catalysts to influence stocks'
direction this week, traders will have a few earnings to latch
on to, with the Coca-Cola Co and Wal-Mart Stores, Inc
as the headliners.
Coca-Cola, the world's largest soft drink company, will post
fourth-quarter earnings on Tuesday before the opening bell.
Wal-Mart is expected to report fourth-quarter results on
Thursday, and more importantly, the world's largest retailer
will give its 2014 earnings forecast.
With 398 S&P 500 companies having reported results so far,
66.3 percent have beaten earnings expectations, above the
historical average of 63 percent. More than 64 percent have
topped revenue forecasts, above the long-term average of 61
percent, both according to Thomson Reuters data.
(Wall St Week Ahead runs every Sunday. Questions or comments
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