Weekly Market Outlook – After 3 Rough Weeks, Stocks Are at a Make-or-Break Level
A bullish turnaround still isn’t unthinkable at this point, even if it’s slipping further out of reach. It’s going to take some serious work from the bulls though, and soon. And given the shape, condition, and placement of the indexes after the recent action, it’s unlikely the bulls are going to feel good about diving back in. One more bad day could break the tentative support that’s still in place, in fact, opening the flood gates of profit-taking. (And truth be told, that may be best for stocks in the long run.)
The chief frustration? We’re headed into a week that’s typically -- even if lethargically -- bullish. The pros aren’t plugged in, but retail investors with a little more time than usual on their hands are actually more plugged in than usual. It’s conceivable they could keep the market propped up long enough to establish a false sense of security that makes it look like the bulls are holding the line and setting up a recovery for the following week.
Or, maybe it won’t be false.
Whatever’s in the cards, we’ll weigh it all in a moment. Let’s first look at the economic news we did and didn’t get, and preview what we may or may not get this week.
Economic Data Analysis
The federal government shutdown has been over for more than a full week now. However, much of the overdue data still isn’t in-hand. The Federal Reserve didn’t give us the tentatively-scheduled capacity utilization and industrial production numbers for October last week, for instance, nor did we get housing starts and building permits data from the Census Bureau.
We did, however, get some numbers, like last month’s sales of existing homes from the National Association of Realtors. They edged a little higher, to an annualized pace of 4.1 million. But, that’s still quite weak.
New, Existing Home Sales Charts
Source: Census Bureau, National Assn. of Realtors, TradeStation
There’s actually no word as to when we’ll get the latest new-home sales figures, which are now two months behind. Given everything that’s happened in the meantime though, August’s surge increasingly looks like an anomalous one-off.
We also got the third and final reading on consumer sentiment from the University of Michigan for November last week. It understandably fell just a bit (although this isn’t yet shown on our chart below.)
Consumer Confidence Charts
Source: Conference Board, University of Michigan, TradeStation
The Conference Board’s comparable measure for November is coming on Tuesday of this week. Look for a slight dip of this number as well.
Last month’s biggie of course was the jobs report for September, posted on Thursday. It was better and worse than expected. We ended up adding 119,000 jobs versus expectations of only 50,000, but the unemployment rate still ticked up to 4.4% instead of holding at 4.3%. This is still actually pretty good though, all things considered.
Payroll Growth and Unemployment Rates Charts
Source: Bureau of Labor Statistics, TradeStation
There’s not going to be an October jobs report, by the way. We’ll simply need to fill in the blanks using November’s numbers.
Everything else we got (which isn’t much) is on the grid.
Economic Data Report Calendar
Source: Briefing.com, TradeStation
This week’s going to be a busy one made even busier by the fact that it’s all going to be condensed into the three trading days before Thursday’s Thanksgiving break.
On Tuesday look for the latest numbers on retail sales. Forecasts are calling for more forward progress for September’s numbers, although retail spending has grown pretty consistently regardless of the economic backdrop or consumer confidence at the time.
Retail Sales Charts
Source: Census Bureau, TradeStation
Also on Tuesday we’re likely to hear September’s inflation numbers… not that it means much now. The Fed seems to have already decided what it wants to do with interest rates for the rest of the year. That’s ok though. Despite the heated rhetoric, inflation rates seem to be holding at reasonably healthy levels.
Consumer, Producer Inflation Rate Charts
Source: Bureau of Labor Statistics, TradeStation
No inflation report will be given for October either, by the way.
The Case-Shiller Home Price Index will also be updated on Tuesday, although that’s only as of September, and we’re still missing the FHFA’s comparable measure (with no word on it will be updated). Either way, home prices seem to at least be peaking. They may even be on the cusp of a measurable, meaningful correction. We’d just like to have a little more data on the matter before making that call.
Home Price Index Charts
Source: Standard & Poor’s, FHFA, TradeStation
Stock Market Index Analysis
For the third week in a row we kick things off with a look at the weekly chart just because it’s important to paint the bigger picture first. Specifically, we want to highlight how quickly the rally started to unravel, and the degree to which it’s done so. As the weekly chart of the NASDAQ Composite shows us, all it took was a kiss of that long-established ceiling (red, dashed) late last month to tip things in a bearish direction. Once it did, the bears didn’t look back and the bulls didn’t get in their way. The NASDAQ is now a little more than 7% off of its peak, and seemingly still moving lower. We got out first bearish MACD crossunder since early this year, in fact, when the market was starting what turned into a sizeable correction.
NASDAQ Composite Weekly Chart, with MACD and VXN 
Source: TradeNavigator
It’s not as if all hope is lost though. While you can somewhat tell on the weekly chart above, as the daily chart of the composite below illustrates even more clearly, the selling finally stalled when the 100-day moving average line (gray) at 22,071 was met. It even looks like the bulls are trying to push up and off it. The daily chart also shows us, though, Thursday’s huge intraday reversal into a major loss. That was the bulls’ best chance of bringing an end to this weakness. When they got close, they flinched. Perhaps the confidence just isn’t there right now.
NASDAQ Composite Daily Chart, with Volume and VXN
Source: TradeNavigator
Almost needless to say, a close under the 100-day moving average line could prove devastating, by virtue of wiping away any hope that this rally is still salvageable and renewable.
And the daily chart of the S&P 500 looks pretty much the same, with the same ultimate interpretation. That is, the bulls had a great chance of pushing their way back above the 20-day moving average line (blue) at 6,769 with Thursday’s strong open. They just didn’t. They went the other direction instead, and while you could argue headlines are to blame, this feels like it was going to happen no matter what.
S&P 500 Daily Chart, with Volume and VIX 
Source: TradeNavigator
Whatever the case, the S&P 500’s 100-day moving average line (gray, at 6,545) appears to be a mental line in the sand. In the same vein, the S&P 500 Volatility Index (VIX) is also bumping into a ceiling at 29 (purple, dashed) the way you’d expect it to at a market low. It just remains to be seen if this ceiling is actually going to hold the VIX back. If it doesn’t, don’t be surprised to see the S&P 500’s 100-day moving average line to fail as a floor, opening the floodgates, so to speak. Next stop? The 200-day moving average line (green) at 6,162.
The tricky part is the timing. Thanksgiving week is usually a bit bullish, even if only a bit. If the pattern repeats itself, it may give the bulls enough time to regroup and restore their confidence enough to rekindle the rally next week.
Just don’t presume that’s going to be the outcome if stocks simply hold their ground in the week ahead though. Both of the indexes will need to fight their way back above their 20-day averages (blue, on the charts above) to convincingly rekindle the rally. Anything less, and the matter remains in question.
And truth be told, as unusual as it would be for this time of year, a sizeable correction sooner than later might be just what the market needs here. It’s certainly overdue. We’ll talk downside targets if-and-when it matters.