Weekly Market Outlook – Even Bearish Weeks Are Still Somehow Bullish

The market just suffered its first losing week in the past eight. And yet, the bigger trend is still bullish. It may be even more bullish now than it was as of a week earlier, in fact, in light of where the bulls drew their lines in the sand last week. Some older and well-established technical support lines continue to keep the market propped up. The more they do, the more solidified the advance becomes.

The biggest surprise? How well stocks did during a month that’s bad more often than good.

Sure, the market’s even more technically vulnerable to a pullback now than it was a month ago, with steep valuations further weighing on stocks. We will have to pay the proverbial piper sooner or later.

Stocks have a funny way of climbing a wall of worry though.

We’ll dissect the situation in a moment. Let’s first run through last week’s economic reports and look at what’s in the pipeline for this week.

Economic Data Analysis

Most of last week’s economic news was surprisingly good, starting with Wednesday’s look at last month’s sales of new homes; we got existing home sales numbers on Thursday. Sales of existing homes rolled in at 4.0 million, down just a hair from July’s figure, and a tad better than forecasted. New home sales, however, soared from 664,000 to 800,000 in August, blowing estimates of 649,000 out of the water. Credit seller’s generous incentives and price breaks, mostly, however. The industry may be fearing a bit of a pile-up in inventory at a point when economic lethargy takes an even bigger toll. (This worry was lifted at least a little bit in September, of course. In other words, don’t look for a repeat of this strength for this month.)

New, Existing Home Sales Charts

Source: Bureau of Labor Statistics, TradeStation

We’re not charting it here, but do know that the personal spending and income data for August both remain healthy. This has an impact on the Federal Reserve’s Fed Funds Rate, which of course fell a quarter of a point a week earlier, and is expected to edge a little lower well into next year. It’s also worth mentioning that the third and final estimate of Q2’s GDP growth was raised from 3.3% to 3.8%. So, the economy is humming more than the pessimists seems to wish it was.

Everything else is on the grid.

Economic Data Report Calendar

Source: Briefing.com, TradeStation

This week’s going to be a relatively busy one as well, starting with Tuesday’s look at the July’s home prices. The FHFA Home Price Index has been drifting lower since March, and it somewhat looks like the Case-Shiller Index is peaking (again) now. Given the backdrop and what we know about builders dropping prices just to move inventory, it’s likely we’ll see a bit of weakness in terms of prices.

Home Price Index Charts

Source: FHFA, National Assn. of Realtors, TradeStation

Just remember this this home price data only reflects homes that have transacted. It doesn’t indicate assessed values or asking prices.

We’re also going to hear September’s reading of the Conference Board’s measure of consumer confidence on Tuesday. We actually got the third and final look the University of Michigan’s sentiment score for this month on Friday of last week. It fell a bit, as the Conference Board’s measure is expected to do as well. And in both cases, this will extend bigger-picture downtrends that have been in place for a while.

Consumer Sentiment Charts

Source: Conference Board, University of Michigan, TradeStation

Of course, there will come a time when sentiment gets so weak that it’s actually bullish. Also of course, while consumer confidence may be weak at this time, none of that pessimism appears to be being reflected in stock prices (which continue to inflate).

Finally, we’re also getting both key numbers from the Institute of Supply Management this week. September’s manufacturing measure will be released on Wednesday, with services data due on Friday. Look for a slight increase in manufacturing activity, but not enough to push back above the pivotal 50 level. The services index is actually expected to fall a bit, yet should still hold above 50. In both cases it looks like we’re trying to start an uptrend. It’s just a struggle.

ISM Service, Manufacturing Index Charts

Source: Conference Board, University of Michigan, TradeStation

Stock Market Index Analysis

The market might have taken a slight tumble last week. Even so the bigger-picture still looks bullish.

Nowhere is this more evident than with the daily chart of the S&P 500. Take a look. The index took one last bullish step on Monday before starting to peel back on Tuesday. It kept falling too, right up until it bumped into its 20-day moving average line (blue) at 6,562 on Thursday… the same day it touched a rising support line (red, dashed) that extends all the way back to late-May. This was the ideal place for the bulls to make their stand, and they did.

S&P 500 Daily Chart, with Volume and VIX

Source: TradeNavigator

Backing up to a weekly chart shows us that while the runup from April’s low is sizable, it only barely puts the index back on the narrow bullish path it was on between 2023 and late 2024. There’s still room for it to continue rallying regardless of which of its technical ceilings you apply.

S&P 500 Weekly Chart, with MACD and VIX

Source: TradeNavigator

Still, the sheer amount of ground the S&P 500 has covered without any sort of corrective effort is unusual. You would have expected to see some sort of more serious test by now.

Either way, there’s room and reason to call for more upside.

The NASDAQ Composite’s story is similar, by the way, even if not identical. As the daily chart illustrates, the composite tested a short-term technical ceiling (yellow, dashed) connecting the NASDAQ’s highs going all the way back to May. Even with Tuesday’s and Wednesday’s (and Thursday’s) selling, however, the composite ended the week on a bullish foot.

NASDAQ Composite Daily Chart, with Volume and VXN

Source: TradeNavigator

The weekly chart of the NASDAQ Composite puts the daily action in the proper perspective… dropping a subtle but important hint. That is, although this doesn’t seem to be the case with the S&P 500, the composite’s advance appears to (still) be slowing down. The MACD lines remains continue to converge, with the volatility index (VXN) looks like it’s trying to curl its way out of a downtrend into an uptrend.

NASDAQ Composite Weekly Chart, with MACD and VXN

Source: TradeNavigator

This is net-bearish. The NASDAQ tends to lead the market higher as well as lower. If it’s lagging, it suggests overall brewing weakness.

We obviously don’t have that yet in a decisive way. As was suggested last week, the composite’s got a ton of technical support currently around 24,730. That floor would still need to be snapped in a big way to even start entertaining bigger-picture bearishness. In the meantime, there’s room for the NASDAQ Composite to continue moving higher before testing technical resistance.

As is the case with the S&P 500 though, the sheer amount of uninterrupted distance covered just since April leaves us concerned about an overdue pullback. It’s just a matter of when the bulls are willing to let the bears get it going. They’re clearly not yet.

Let’s assume the bigger-picture uptrend is going to remain in place until we obviously just can’t anymore. This means being pretty tolerant of slight stumbles, which clearly haven’t been an issue of late. Just keep the overall vulnerability in mind. Once a correction does finally get going and start smashing multiple technical floors, it could be a bit painful, and even a little scary. There’s a lot of pent-up profit-taking just waiting for an excuse here. We’ll talk about downside targets when the time comes.