Wall St Week Ahead – Investors defensive with data in spotlight

By Chuck Mikolajczak

NEW YORK, Aug 20 (BestGrowthStock) – With Wall Street limping along
through the summer doldrums, investors say they will remain on
guard for more deterioration in what’s expected to be a
light-volume week.

The S&P 500 suffered losses this week and is in danger of
falling through support due to continuing worries about
economic data.

“The market is moving into a defensive posture coming into
next week,” said Paul Mendelsohn, chief investment strategist
at Windham Financial Services in Charlotte, Vermont.

“There may be some trepidation on the data that is coming
out based on the data we saw this week that seems to indicate
the economy could be deteriorating.”

Even a pick-up in mergers and acquisitions was not enough
to entice investors to get back into the market because of the
dismal signs.

Potash Corp (POT.TO: )(POT.N: ) searched for a white knight on
Friday as BHP Billiton (BHP.AX: ) formally launched its $39
billion hostile offer for the world’s largest fertilizer
company. For details, see [ID:nSGE67J03V].

The offer came on the heels of Thursday’s deal by Intel
Corp (INTC.O: ) to acquire software maker McAfee Inc (MFE.N: ) for
$7.7 billion, fueling speculation more acquisition activity was
on the horizon, which market participants noted may not improve
the economic climate. [ID:nN19252526]

“The main goal of a merger is to cut costs which means they
are going to be cutting jobs even more — so is that
necessarily a good thing?” said Joe Saluzzi, co-manager of
trading at Themis Trading in Chatham, New Jersey.

Anemic volumes on Wall Street recently — including the
lowest volume tally of the year on Monday — will also present
another obstacle as they show apprehension by investors and are
unlikely to improve without a significant catalyst.

According to Thomson Reuters data, 97 percent of S&P 500
companies have reported quarterly earnings, putting the
attention squarely on economic data, including reports on the
housing market, durable goods and the preliminary reading of
gross domestic product.

The government’s estimate of GDP is expected to show a 1.4
percent increase in the second quarter, down from the 2.4
percent rise estimated a month ago.

Disappointing initial jobless claims data and a dismal
reading on manufacturing activity in the mid-Atlantic region on
Thursday have turned investors pessimistic, as the chorus
warning of a double-dip recession grows louder.

On Friday, the S&P managed to close above the 1,070 level,
viewed as a key support level as it represents both the August
16 low and the 50 percent Fibonacci retracement from the rally
between July 1 and August 9.

“There is a critical point here — if we were to close
under that I would probably increase my hedges a little bit
just to add some protection coming into the weekend here,” said
Mendelsohn.

For the week, the Dow fell 0.9 percent, the S&P 500 slipped
0.7 percent but the Nasdaq added 0.3 percent.

Data from Credit Suisse showed institutional investors had
adopted a more defensive stance in the second quarter,
increasing holdings in areas such as telecoms and utilities along with food, beverage and tobacco — a trend which could
continue due to weak data, according to analyst Pankaj Patel.

“Usually there is some momentum so you would see a similar
thing this quarter, depending on how this quarter turns out,
they will slowly change it. It doesn’t change quickly most of
the time.”

As August options expired on Friday, options investors are
bracing for a quiet market next week. But M&A activities that
have been gaining ground recently will continue to be in the
spotlight.

“The big speculation for next week is who is next on the
M&A front. That’s going to be the big story and information
everyone wants to know,” Jud Pyle, chief investment strategist
at PEAK 6 Investments in Chicago.

Options activity on U.S.-listed shares of Canadian
fertilizer firm Potash Corp was one of the most active this
week after it rejected a take over bid from BHP Billiton.

The CBOE Volatility index (.VIX: ), Wall Street’s so-called
fear gauge, was expected to stay below 25, suggesting a
relatively calm market. Currently the index was trading up 1
percent at 26.71.
(The Stocks Outlook column appears every Sunday. Comments or
questions on this one can be e-mailed to:
[email protected])
(Reporting by Chuck Mikolajczak; additional reporting by
Angela Moon; Editing by Kenneth Barry)

Wall St Week Ahead – Investors defensive with data in spotlight