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RealTime IT News

A Pivotal Week

The next week could prove to be a pivotal one for the stock market, determining whether the move out of the current trading range will be up or down.

Beginning with the Producer Price Index and Michigan consumer sentiment this morning, and continuing through next week's Federal Reserve meeting and key technology earnings reports, the market should have enough information to determine near-term direction. (Note: The Morning Report and technical market commentary will not be published next week, and will resume the week of May 21. The Market Close will continue to be published next week.)

After Tuesday's first-quarter productivity report showed falling inflation and rising wages, a recipe for inflation that hopefully will be a one-quarter phenomenon, investors will be watching economic reports closely for signs of weakness and inflation, which when combined produce stagflation. Hopefully we won't need to take those 1970s leisure suits out of storage just yet.

Inventory and production numbers come out on Monday, and then Tuesday is the Federal Reserve meeting. The Fed funds futures are pricing in about a 90% chance of another 50 basis point rate cut on Tuesday, and the Fed is unlikely to disappoint. More important will be the accompanying bias statement; any hint that the Fed's bias is shifting back toward neutral would likely be met with selling. An interesting coincidence for followers of the market commentary is that May 15 is also a fairly significant cycle turn date, give or take a day. If the market's going to break one way or another, May 14-16 is a good window for that to occur.

After the Fed's work is done, the parade of earnings reports begins. After the close on Tuesday, chip equipment leader Applied Materials is expected to report that earnings declined 40%, to 33 cents a share. At $52 a share, AMAT is trading at twice the level it has historically bottomed at, but the entire sector has been held aloft by Intel's projected $7.5 billion capital investment spending budget. Storage leaders Brocade and Network Appliance also report after the close on Tuesday, and analysts will be looking for signs of a bottom in that most important of sectors.

The CPI will be reported Wednesday morning, and then Hewlett-Packard will report earnings after the close, but given that the stock is barely above its 52-week low with the Dow up 20% off its low, it appears investors already fear the worst. Ciena and Dell , before and after the close on Thursday, will be much more important. Ciena has been one of the very few tech stocks to show no signs of slowing, and will be watched closely for signs of a slowdown in optical equipment spending. Dell has been rewarded by investors this year for gaining market share from rivals, but at some point business has to begin to show signs of bottoming.

And if all that isn't enough to worry about, some analysts are expecting Oracle to issue an earnings warning some time after May 15.

If all that isn't enough to move the market one way or another next week, we could be range-bound for a long time.