Yes, as was largely expected, the market finally bounced back from a brutal beating last week. The S&P 500 clawed back 3.4% its value during the holiday-shortened stretch, in fact.
Just don’t jump the gun. Stocks didn’t actually snap the technical downtrend. In fact, the advance suspiciously halted right as some major lines began being tested, suggesting the bulls were ready to bow out and/or the sellers were ready dive back in when and where these tests took shape. That should concern the bulls. So should the lack of volume behind the effort.
We’ll look at the matter in detail in a moment. First, let’s look at last week’s top economic reports and preview what’s coming this week.
Economic Data Analysis
Things started in earnest on Tuesday, with January’s home pricing numbers from Standard & Poor’s as well as the FHFA’s measure of home pricing. Prices aren’t falling, but their price progress is slowing again. What you’re not seeing is that total home sales remain near or at multiyear lows. It’s not surprising to see prices finally struggling.
Home Price Index Charts
Source: Standard & Poor’s, FHFA, TradeStation
On Tuesday we heard March’s consumer confidence score from the Conference Board. It ticked up a little higher to 91.8, in contrast with the University of Michigan’s slide from a reading of 56.6 to 53.3 for March. In both cases though, the bigger trend is still one of deterioration.
Consumer Confidence Charts
Source: University of Michigan, Conference Board, TradeStation
Last month’s retail sales were reported on Wednesday. More slow and steady progress, suggesting the consumer economy is doing fine even if the rhetoric and headlines imply otherwise.
Retail Sales Charts
Source: Census Bureau, TradeStation
The Institute of Supply Management’s manufacturing barometer was updated on Wednesday as well, inching slightly higher to 52.7, but perhaps more important, holding on to January’s surge. Notice that the services index also continues to strengthen.
ISM Manufacturing, Service Charts
Source: Institute of Supply Management, TradeStation
The ISM services report is coming on Monday. Look for a slight dip, but it should remain well above the key 50 level.
Finally, on Friday we got last month’s jobs figures. Payroll growth was great, rolling in at a multimonth high of 178,000, although that was a bounce back from a downward-revised February loss of 133,000 jobs. Even so, that was enough to continue dialing back the unemployment rate to 4.3%.
Payroll Growth, Unemployment Rate Charts
Source: Department of Labor, TradeStation
This is obviously good news, although it remains to be seen if it will positively impact stocks. This reduces the Federal Reserve’s perceived need for lower interest rates, even if only a little… for now.
Everything else is on the grid.
Economic Data Report Calendar
Source: Briefing.com, TradeStation
There’s not a whole lot of any real interest on the schedule for this week until Thursday. Although we’re not going to be plotting any of it here now or then, that’s the day we’ll hear February’s personal income and consumer spending data, which has implications for future interest rate decisions… something that’s just become more complicated. We’ll also hear the second estimate of Q4’s GDP growth, which wasn’t great the first time around.
What we’re really going to be scrutinizing, however, is Friday’s look at consumer inflation numbers for last month. Consumer inflation rates have been edging lower, in contrast with producer inflation, and will likely remain subdued this time around. Again, the Fed still has room and reason to keep interest rates where they are, if not lower them.
Consumer, Producer Inflation Rate Charts
Source: Bureau of Labor Statistics, TradeStation
March’s producer inflation figures will be reported next week.
Stock Market Index Analysis
Based on nothing more than the number alone, it would be easy to assume the selling has run its course and the market’s back in rally mode.
There’s more to the matter than last week’s 3.4% bounceback from the S&P 500 though. Namely, the rebound suspiciously stopped gaining right as it neared the 20-day moving average line (blue) on Wednesday. It started to take another swipe at this technical ceiling on Thursday, but once again, the bulls backed off. This hesitation is telling. So is the fact that there was never really any great volume behind last week’s buying.
S&P 500 Daily Chart, with Volume and VIX 
Source: TradeNavigator
The NASDAQ Composite’s daily chart looks about the same, by the way. It teased the idea of testing the 20-day moving average line (blue) at 21,986 on Wednesday and then again on Thursday. But, it was never going to make any real attempt at hurdling it. Notice what previously was something of a horizontal floor at 22,029 (red, dashed) seems to have become a technical ceiling.
NASDAQ Composite Daily Chart, with Volume and VXN
Source: TradeNavigator
What we really want to hone in on with the daily chart of the NASDAQ, however, is how close we are to a so-called “death cross,” where the 50-day moving average line (purple) crosses under the 200-day line (green), signaling a massive shift from bullish to bearish momentum (see the orange circle on the chart above). For the record, most recent corrections have made their bottom shortly after this death cross. In most cases though, there’s also at last one more good down leg before that low is made. Which, makes sense. This technical trigger can really prompt a wave of fear-based selling, serving as the capitulation we’ve not seen yet.
In this vein, as the weekly chart of the NASDAQ Composite below shows us, the index has yet to hit a low that would suggest this flushout has indeed happened. We still contend the most likely downside target for that move is the 38.2% Fibonacci retracement line at 20,553. That would be about a 16% correction from the Composite’s January peak, which is enough. We’ll also be looking for the volatility index (VXN) to finally give is that spiky thrust up to the 40-ish level in conjunction with the next (and final?) leg lower.
NASDAQ Composite Weekly Chart, with MACD and VXN
Source: TradeNavigator
Obviously the conflict in the Middle East is driving almost everything right now. The longer it drags on though, the exponentially longer it will adversely impact the stock market, perhaps causing economic weakness that weigh on stocks even more than they’re already being weighed down.
Yes, a quick, comfortable end could just as easily reignite last week’s rally effort and keep it going. Based on what we see and have right now though, there’s no reason to think the market has cleared those technical hurdles it needs to in order to get that ball rolling. The bulls still need help from here. If they don’t get it soon, it’s likely last week’s tests of the aforementioned technical ceilings will just be a setup for a move to even lower lows… although perhaps the last one we need to suffer for now. We’ve already been through most of whatever correction we’re due already.