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Week Ahead: Stocks Search for Catalyst in Quiet Week

Stocks could side step temporarily as investors look for the next catalyst that will break the market out of its current range.

A last blast of third quarter earnings news is expected this week, including from consumer-driven companies like Disneyand major retailers, like Wal-Mart , Nordstrom and Macy's . The economic calendar is relatively light, but a group of Fed speakers could get some attention. There is also $81 billion in Treasury note auctions scheduled in a holiday-shortened week for the bond market.

Traders on the floor of the New York Stock Exchange.
Photo: Oliver Quillia for CNBC.com
Traders on the floor of the New York Stock Exchange.

Stocks shook off a two-week losing streak in the past week, with the Dow gaining 3.2 percent to 10,023. The S&P 500 was up 3.2 percent to 1069. The dollar was weaker against a basket of currencies and down 0.9 percent against the euro to a level of $1.4845 per euro. Oil was up 0.8 percent for the week to $77.65, but gold was the standout, finishing the week at a record $1095.10 per troy ounce, a gain of 5.3 per cent.

Traders say they expect intra-day volatility to continue, but the stock market is calmer than it was at the start of the week. For one, Wednesday's Fed statement reassured investors that the Fed would hold rates at extreme lows for some time, maintaining a positive environment for equities for now. They also point to the market's ability Friday to make small gains after the October employment report showed a surprise jump in unemployment to 10.2 percent.

"I think we're going higher," said Andrew Burkly, technical strategist at Brown Brothers Harriman. "We took our rating down a couple of weeks ago, and said we think we'd see between 1130 and 1040 (on the S&P 500). We tested the low end of that banner at 1040 and we're on our way back up."

Burkly and other analysts said the market is hyper sensitive to economic news. "The big battle right now is that people are just concerned about how sustainable the recovery is going to be," he said. "...Trading is definitely going to be pretty volatile. It's a pretty wide range we're using. I think we're going to sees that back and forth a couple times over the next couple of months."

PNC's Bill Stone said he remains "cautiously optimistic," but he agrees its the data that will drive the market for now as investors search for signs the recovery is sound. "What are the markets watching for? ... Indications the consumer might be coming back, and the second one is jobs."

"We still believe as this "less down is the new up" employment trend continues, we will finally see positive employment growth in the first quarter of next year. This should support our case for the sustained economic recovery and stock prices," he said in a quick note after Friday's jobs report.

Raymond James chief investment strategist Jeffrey Saut said he was hoping the market would have pulled back further to provide a buying opportunity. "I do think we're going to be higher. I do think earnings are going to keep coming in better than most people think, and the carrot before the horse for underinvested portfolio managers is going to be those earnings," he said. Saut has a target of 1200 to 1250 on the S&P, the level it was at before Lehman failed in September, 2008.

Saut said one of his favorite indicators is showing a positive trend for stocks. "The number of stocks above their 50-day moving average went from 90 percent in September to 32 percent. Even without having any big correction, you have corrected some of the excesses," he said.

Merry 'Thriftmas'

'Merry Thriftmas'

One big measure of consumer health will the holiday shopping season, and Stone said it may be better than Wall Street is forecasting. "Expectations were so low for the holidays, so I guess I feel pretty good about it because there's plenty of opportunity to beat it," he said.

October's chain store sales, reported by retailers in the past week portrayed a mixed picture with some high end retailers, like Nordstrom and Saks performing better than expected while some chains at the lower end missed.

Saut said he sees signs of life in the consumer but he thinks the consumer will be price sensitive this holiday season. "I see people out eating and doing things. I do think a theme of this Christmas is going to be 'Thrift-mas.' which is one of the reasons we own TJX and have been buying some Wal-mart," he said.

"The high end is coming back because the stock market is coming back," he said.

Earnings Central

Retailers will get a lot of attention in the coming week, as several major chains report third quarter earnings and will hopefully signal what they are seeing for the holiday season. Macy's reports Wednesday; Wal-mart, Kohl's, Nordstrom and Urban Outfitters report Thursday, and J.C. Penney and Abercrombie and Fitch report Friday. Another high profile retailer, Dollar General, the biggest discount chain, is expected to go public in the coming week in one of the biggest IPOs of the year. Its $750 million IPO is expected to price Thursday.

In other earnings news, Liberty Media Entertainment, Liberty Media Interactive, Allianz, Dish Network, American Water Works, Tesoro, CGI , Rockwell Automation, Windstream, and Nippon Telegraph report Monday morning. Electronic Arts, Fluor, MBIA, Priceline.com and McDermott International report after Monday's closing bell.

Tuesday's reports include Tyco, Vodafone and Atmos Energy. Applied Materials and Computer Sciences report after Wednesday's bell. Disney, Encana, Alliant Tech, AmBev, and URS report Thursday.

Dollar Dilemma

The momentum of the 'risk trade' has been one of the big factors impacting the stock market in recent months, so stock traders pay close attention to the dollar's every move. The risk trade has thrived as the Fed's low interest rate policy weakens the dollar. As the dollar weakens, investors pour money into risk assets, like stocks and commodities.

Brian Dolan of Forex.com said currency traders will be focused on the G-20 gathering of finance ministers in St. Andrews, Scotland this weekend, the APEC meeting in Asia later in the week and the comments from members of the Fed in between. President Barack Obama and Treasury Secretary Tim Geithner both visit Japan this week, ahead of the Asian Pacific Economic Cooperative meeting in Singapore next weekend.

"You also have the Eurozone finance ministers meeting Monday and Tuesday," said Dolan.

He said the dollar could strengthen in the coming week, which could mean stocks sell off. "There's still a massive short dollar position. You're going to get some verbal support for the dollar and verbal concerns about the euro's strength," Dolan said.

"I'm looking at a multi week top forming in the risk assets and a bottom forming in the dollar, and this week a correction in that," said Dolan.

Bonds

For the Treasury market, the focus is on auctions in the coming week. On Monday, $40 billion in 3-year notes will be auctioned. Tuesday will see $25 billion in 10-years, and $16 billion in 30-years are auctioned Thursday. The bond market is closed for Veteran's Day Wednesday. the 10-year lost 31/32 points in the past week, to 100-31/32, raising it yield to 3.507 percent. The 2-year gained slightly though, and its yield slipped to 0.857 percent.

"The duration has sold off 10s and 30s," said CRT strategist David Ader on Friday. "The short front end has traded better. We have 10 and 30 auctions next week. We have a Fed that provided some relief."

Ader said besides the auctions, the Fed speakers on Tuesday will be interesting. "We've got Yellen, who is an extreme dove; Fisher, who is an extreme hawk and Lockhart who is out in the middle," he said. Fed Gov. Daniel Tarullo also speaks on financial regulation Monday in New York and on resolution authority on Tuesday.

On Tuesday, San Francisco Fed President Janet Yellen; Atlanta Fed President Dennis Lockhart, and Dallas Fed President Richard Fisher all speak on the economy. The Boston Fed's Eric Rosengren speaks in London that day.

Chicago Fed President Charles Evans speaks on asset bubbles in Paris, while New York Fed President William Dudley speaks in Princeton on Friday.

Econorama

Weekly jobless claims are reported Thursday before the bell, and the federal budget is issued in the afternoon that day. International trade and import prices are reported Friday, as is consumer sentiment for November. The NFIB small business survey is released on Tuesday.

— Questions? Comments? marketinsider@cnbc.

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.