Saturday, October 13, 2012

The Week Ahead: Consumers, houses & more

Two retailing indicators, retail sales and consumer prices, along with industrial production and two real-estate indicators, housing starts and existing home sales, dominate the week.

But of most interest to many traders is that next Saturday is when October options expire, and Friday is the final trading day.

Retails sales, released Monday at 8:30 a.m. Eastern by the Commerce Department, is the broadest measure of store activity. The conventional wisdom is that the economy won't come roaring back until consumer start to once again shop 'til they drop. So this is a key indicator.

Of course, consumer's ability to shop depends in part on consumer prices, out Tuesday at 8:30 a.m. I've long felt that the consumer prices index is something of a paradox. If prices are rising, then people are less able to shop; if they're falling, then they're reluctant to shop because they think what's cheap today will be even cheaper tomorrow, so why not wait.

Industrial production, out Tuesday at 9:15 a.m., covers manufacturing big and small. Production and its proportion of capacity are measure of how the economy is faring, somewhat upstream from the consumer side of things.

Housing starts are out Wednesday at 8:30 a.m. By definition a house is started when the shovel hits dirt, so the indicator measures what's going to be coming onto the market several months down the road.

The other real-estate measure is existing home sales, out Friday at 10 a.m. Homes that have had more than one owner are by far the larger share of the market, so this indicator measures whether lenders and the people who take their loans are in fact confident that the housing market is on the road to recovery.

Leading indicators out this week:

Building permits for new private homes is part of the housing starts report, out Wednesday at 8:30 a.m. Starts are when the excavation begins, and building permits pushes back even further upstream.

Average weekly initial jobless claims will be reported at 8:30 a.m. Thursday.

Traders also keep track of these financial leading indicators: The M2 money supply, out Thursday at 4:30 p.m. from the Federal Reserve, and two reported continually during market hours: The S&P 500 index and the interest rate spread between 10-year Treasuries and the federal funds rate.

The leading indicators index, which is a compilation of 10 individual leading indicators, will be released Thursday at 10 a.m. This index isn't consider a big deal by many who keep tabs on the economy -- perhaps because by its nature it is a trailing indicator based on leading indicators, so why not use the real deal.

I also like to keep an eye on the Baltic dry index of world shipping, updated daily.

Other reports of interest:

Monday: The Empire State manufacturing survey at 8:30 a.m. -- as goes New York, so goes the nation -- and business inventories at 10 a.m.

Tuesday: Treasury's report on foreign capital flows into and out of the U.S., at 9 a.m., and the Home Builders' housing market index, at 10 a.m.

Wednesday: Petroleum inventories at 10:30 a.m.

Thursday: The Philadelphia Federal Reserve's survey of the economic state of the mid-Atlantic region, at 10 a.m.


Two members of the Federal Open Market Committee are speaking during the week: Richmond Fed Pres. Jeffrey Lacker on Monday and San Francisco Fed Pres. John Williams on Tuesday.

An alternative member of the FOMC, St. Louis Fed Pres. James Bullard, also speaks on Monday.

Trading calendar

By my rules, as of Monday I can trade November vertical, calendar and butterfly spreads, as well as iron condors and the short legs of diagonals and covered calls, as well as January single options and straddles. Of course, shares are good at any time.

Good trading!

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