Coming Week: No Top for Oil?

05/10/08 - 10:16 AM EDT

FRE HPQ (Action Alerts PLUS PICK) JCP JWN M OIL WMT

Flynn also points out that crude prices peaked around Memorial Day last year, and it's possible they could follow the same pattern this year.

Rising oil dented stocks last week, with all three major indices losing ground. The Dow Jones Industrial Average fell 2.4% over the five sessions to 12,745.88. The S&P 500 declined 1.8% to 1388.28, and the Nasdaq Composite shed 1.3% to end the week at 2445.52.

Market observers didn't see much in the way of catalysts in the coming week to move equities much higher.

Todd Leone, head of listed trading at Cowen & Co., said the S&P's failure to rise above its 200-day moving average, a key technical level, may have been discouraging to many.

He's still optimistic, though. "I think the market may trend slowly higher," he says. "Buy the dips, is what I'm thinking."

On the other hand, Jason Goepfert, chief executive at Sundial Capital Research, sees a number of negative signs. He lists unusually low volume, a negative divergence in breadth (meaning not many stocks are confirming the move on the indices) and a high level of optimism as some of the factors causing worry.

"When you combine all those together, I think it paints a fairly negative picture," he says. "On the downside, I would look for about a 50% retracement of the March rally," which would send the S&P 500 down to about 1350.

Still, Goepfert mentions that options expiration occurs at the end of next week, and that usually adds to volatility. Over the past few years, that has typically given stocks an upward boost.

On the economic side, the retail sector has a lot of news coming out next week. The Census Bureau will be releasing its monthly retail sales data on Tuesday. Also that day, blue-chip behemoth Wal-Mart(WMT - Cramer's Take - Stockpickr) reports its earnings.

"I'm looking for weak retail sales, excluding gasoline," Kasriel says. "Maybe the worst is over, but there's a lot more bad news to come in terms of credit issues. Discretionary consumer spending is definitely contracting.

"The second-quarter [gross domestic product] change is going to have a minus sign in front of it," Kasriel continues; this would signal that the U.S. economy has receded.

Other notable retail earnings reports next week include Macy's(M - Cramer's Take - Stockpickr) on Wednesday and J.C. Penney(JCP - Cramer's Take - Stockpickr) and Nordstrom(JWN - Cramer's Take - Stockpickr) on Thursday.

Non-retail profit reports of note will come from Sprint Nextel(S - Cramer's Take - Stockpickr) on Monday, Freddie Mac(FRE - Cramer's Take - Stockpickr) on Wednesday and Hewlett-Packard(HPQ - Cramer's Take - Stockpickr) on Thursday.

Since oil and other commodities appear to be eating into the appetite of the consumer, Wednesday's release of the consumer price index from the Labor Department should be notable.

Federal Reserve chief Ben Bernanke is expected to give speeches on Tuesday and Thursday, but those events may have less significance than they often might. To a large degree, the markets feel that the Fed may be in a holding pattern on interest rates, so traders may give the central bank head's words less scrutiny than they often do.