It's hard to believe, but last week was only the second week of this wave of the pullback (following two pretty bullish weeks). Last week, stocks fell about 5%, and they're down about 8.5% for the last two…. spurred by a ton of economic data that was interpreted as 'half empty'. Before throwing in the towel though, a couple of clues should be considered.
First up though, let's turn through some of last week's economic highlights, and look at the few that are on tap for this week.
Economic News
The good news from last week were increases on personal incomes, personal spending, and home prices. The bad news was, well, pretty much everywhere else.
While there were reasons for hope, the increase in continuing as well as new unemployment claims, and the weaker-than-expected job growth number, fueled the pullback that was kick-started by Tuesday's plunge in consumer confidence. Nothing beyond the income/spending news early in the week could have been considered inspirational.
Economic Calendar
As for the coming week, there's little on tap. ISM Services will be posted on Tuesday, while unemployment claims are slated for Thursday. Each is supposed to be tepidly more encouraging.
The biggie for the coming week, however, is going to be on the consumer credit front. Despite credit levels increasing by $1 billion last month (versus an expected contraction of about $2 billion in May), forecasters are again looking for a contraction… by $2.5 billion, to be precise. This may well end up being a big upside catalyst, given the surprise increase in income and spending last week.
In any case, the lack of announcements should keep things fairly tame this week.
S&P 500 Index
We saw a little hint of this Thursday, and then slightly again on Friday. Saw a hint of what? Buyers testing the waters. Though we technically closed lower on Thursday as well as Friday, on both days we saw strong rebounds late in the session to push the market back up towards the upper and of the daily range. It's a stark contrast to Tuesday's and Wednesday's decimation.
At the same time, the VIX has not only failed to progress higher, but actually sank pretty significantly on Friday. Granted, it was a pre-long-weekend Friday, but still – volume wasn't rock bottom.
It's too soon to assume a rebound is nigh, even though the market is as oversold as can possibly be. However, it would be equally errant to assume more selling is on the way.
If the VIX slides under 30, and if the SPX makes it back above Thursday's and Friday's high of 1033, that should be the beginning of at least a temporary rally. If the SPX falls back under Friday's low of 1015, and if the VIX starts to trend higher, take it at face value.
You should know, however, that the move from the April 23rd peak to the July 1st bottom spans 17%…. more than the 'average' correction, but shy of the 20% dip that officially becomes a bear market. This last leg of the pullback should have sufficiently deflated the euphoria to the point of capitulation. Let's tread lightly while we're at the inflection point, largely framed by the encounter with an important Bollinger band on Thursday.
SPX Daily Chart
Sector Performance
There was nowhere to hide last week, but there were clearly some arenas that held up better than others. The defensive areas (utilities, healthcare) gave up little ground, while the aggressive areas (industrials, materials) tumbled the most. It's a subtle hint of the bigger-picture bearish assumptions that investors are adopting right now.
Sector Rank Table
Industry Performance
In line with the defensive theme from the sector rankings, tobacco and soft drinks actually made some progress last week. And, also in line with sector themes, industrial and materials stocks got crushed…. along with casinos.
While a trend is a trend until it's not, it's worth noting that if the market rebound (if we just saw a capitulation) these industry leaders/laggards are apt to reverse course quickly. Be nimble here.
Industry Rank Table
