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However, there is a lot of economic data out this week, especially pertaining to the consumer, that could show some hidden strength.  On the other hand, if the consumer doesn’t look good (consumer spending is 70% of GDP), then I would expect the markets to push to new lows with high volatility baked in. We have not seen large panic selling to this point, but it feels like we’re on the edge and it’s as if though we’re just waiting for the right catalyst to show a major sell-off. For now, however, the options market shows there are still some traders betting long and until the VIX shoots back up above 23.5, we’re not really in an ‘unload the longs’ environment. Right now, we’re torn. The market is nervous, but the value trader is still picking up what they think are bargains.

Consumer numbers this week (from MarketWatch)

The reason I show the chart above is that these numbers suck… and without a consumer that feels better about the job situation, they won’t spend. If they don’t spend the economy doesn’t recover.  Unfortunately, we’re a country dependent on consumers to spend beyond their means.  If they don’t, we would be a much smaller, economically, country.  Right now, what’s the incentive to spend on anything beyond necessities?  Confidence is everything – even if artificial or unfounded.

SPX is in a down-trending pitchfork channel with price currently at the mid level and sma200. The next direction is hard to predict, but I’m looking for moves OUT of the top of the channel or below the mid-range. If we fall below, then we’ll watch sma200, then March 16 lows.  Below that is a lot of open air and might bring in the panic sell.. we’ll have to watch.  On the up side, we need to get out of the channel and, ideally, move above April 18 lows.  Above 1300 might bring in some confidence.

Headed into the week, I’m treating it as a big unknown.  We failed to break through key resistance levels last week and now eyes are on support levels.  It’s time to keep swing positions small (if any) and be selective intraday.  There will be plays out there and we’ll do our best to find them in the Boom Factory.  Just remember to not fall in love with ANY stocks. Sell the pops, honor your stops.  Until the market moves out of this consolidation range just above sma200 (on SPX), it won’t do any of us any good to trade too heavy.  Lots-O-Cash is a good position overnight until proven otherwise.

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• The commodities have sold off quite substantially
• Earnings season has been generally strong, but signs of input costs crept into many of the conference calls.
• Ironically, the market has drifted down since the Osama news.
• The world is not and probably never will be a safe place – Syria, Isreal, Egypt, Libya, on and on.
• Worry is starting to revisit the markets. This is probably the most significant market influencer over the next week.  All we need is some major support levels to be taken out for the market to fall hard.
• American Association of Individual Investors (AAII) poll showed more bears than bulls for the first time since the mid-March lows.
• The Investment Company Institute (ICI) reported more than $2 billion was pulled out of domestic mutual funds last week — again, the highest since that March bottom.
• More and more chatter about the end of QE – in other words, increasing uncertainty.
• Debt ceiling is in the news, but I don’t think it’s a news maker – no lawmaker will get in the way of raising the debt ceiling whether they like it, or not.
• Consumer Sentiment numbers were good Friday with Core CPI inline with expectations
• Continuing and initial jobless claims both rose – not good.
• Retail sales were down with Core Retail inline.
• Trade balance sucked and oil inventories were higher than expected (decreasing US demand).
• Anything related to Home Sales or Housing in general sucks.
• European sovereign-debt woes.
• POMO

What does this all mean?

I have no idea.. and that’s the problem.  The market has no idea what to do with the current environment – are we headed to stagflation?  Will unemployment ever get better?  Is the world about the enter another recession, or even worse?

As of Friday, the market is generally neutral, but getting nervous. The question is whether fear will win out or if the contrarian view will pervail and the market will continue higher.

CPC – Shows a narrowing of the extremes.  I could be completely wrong, but I believe this mans we’re setting up for something strong.. big fall maybe?

SPX and SPY –

Since I don’t have a clue (gut says we go down from here), I’m staying away from holding much overnight.  As a matter of fact, it’s all about day trading for me right now.  Last week offered a ton of opportunities in micro-cap biotechs and these volatile trading sectors is where I’ll stay throughout most of the trading week.  No need to swing too much right now.

Monday

• Empire State manufacturing index for May. On the earnings front, retailers J.C. Penney (JCP), Lowe’s (LOW), and Urban Outfitters (URBN) will reveal their quarterly results.

Tuesday

• On Tuesday, we’ll hear about new home starts, industrial production, and capacity utilization for April. Earnings are due out from a few heavy-hitters, including Dell (DELL), Home Depot (HD), Saks (SKS), and Wal-Mart Stores (WMT).

Wednesday

• Wednesday features the regularly scheduled update on domestic petroleum supplies, as well as the minutes from the latest meeting of the Federal Open Market Committee (FOMC). The day’s earnings calendar includes reports from Deere & Co. (DE), Hewlett-Packard (HPQ), Pan American Silver (PAAS), Staples (SPLS), and Target (TGT).

Thursday

• The economic calendar wraps up early on Thursday, with a flurry of data on the docket. Traders will hear the weekly report on jobless claims, the Philly Fed index for May, April’s existing home sales, and the Conference Board’s index of leading economic indicators. Retailers and tech issues will share the earnings spotlight, with reports due out from Autodesk (ADSK), Dollar Tree (DLTR), GameStop (GME), Salesforce.com (CRM), Sears Holdings (SHLD), and Williams-Sonoma (WSM).

Friday

• The economic calendar is bare on expiration Friday. Camelot Information Systems (CIS), Donaldson (DCI), and Yingli Green Energy (YGE) will round out the week’s slate of earnings reports.

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