Weekly Market Outlook – There’s Still a (Slim) Fighting Chance
Well done bulls! The market started last week’s trading on the verge of a pretty serious technical breakdown. After an uncertain start, it found a way to fight its way back from the brink, and even ended the week on a high note… with people buying stocks headed into the weekend, largely in response to the Supreme Court’s decision to unwind many of President Trump’s recently-imposed tariffs.
Just don’t get too gung-ho just yet. The volume behind last week’s modest recovery was anything but convincing, and stocks didn’t exactly cement a firm recovery foundation into place. The market could still slip into rather serious trouble after last week’s reprieve. One or two bad days could (still) do it.
We’ll look at the action in detail in a moment. Let’s first dissect last week’s economic news and preview what’s coming this week.
Economic Data Analysis
For a holiday-shortened week, we actually got quite a bit of news last week, with much of it coming on Tuesday, and most of it pretty good.
Take Tuesday’s look at a couple of months’ worth of housing starts and building permits, for instance. Although tepidly, we’re starting to see discernible improving trends for both… mostly. We’d like to see a few more months of forward progress here, but at least there’s a little hope through December’s data.
Housing Starts, Building Permits Charts
Source: Census Bureau, TradeStation
Ditto for capacity utilization and industrial production numbers released on Tuesday. It does seem like we’re seeing some constructive, consistent progress here, even if it is a bit anemic. The direction of these lines is far more important than their absolute levels.
Industrial Production, Capacity Utilization Charts
Source: Census Bureau, TradeStation
On Friday we finally got a two-month update (November and December) on new home sales, rounding out the existing home sales figures we heard a week earlier. They were ... ok. Although still in-line with the slight lull seen shortly after August’s unexpected surge, there’s no denying the figures are holding on to most of the ground they reclaimed after lingering losses during and because of the COVID-19 pandemic. Of course, there’s also no denying every bit of this strength for new homes sales is coming out of would-be demand for existing homes.
Home Sales Charts
Source: Census Bureau, Natl. Assn. of Realtors, TradeStation
Or, maybe that’s not quite it. As of December, inventory of existing homes for sales was back to near a one-year low of 1.22 million, versus July’s 1.55 million. These houses just don’t exist.
Finally, though we’re not charting it here, also on Friday we heard last month’s personal income and expenditures figures, which makes a sizeable impact on the Fed’s decisions regarding interest rates. Pay increases are still healthy without being overheated, and price increases accelerated but remain within tolerable levels… for now. Nevertheless, the FOMC now has a little less room to proceed with plans to impose a handful of rate cuts this year.
Everything else is on the grid.
Economic Data Report Calendar
Source: Briefing.com, TradeStation
This week’s going to be a rather busy one as well, kicking off with Tuesday’s home pricing reports. You’ll recall we’re actually seeing a divergence here, the Standard & Poor’s Case-Shiller figure in decline even as the FHFA’s figure inches higher (perhaps suggesting urban area’s prices are unwinding while rural prices are still gaining ground).
Home Price Charts
Source: Standard & Poor’s, FHFA, TradeStation
Also on Tuesday we’ll get our one-and-only consumer confidence score from The Conference Board for February. Economists expect a measurable improvement from January’s level, but it should still be at uncomfortably low levels.
Consumer Sentiment Charts
Source: Conference Board, University of Michigan, TradeStation
The University of Michigan’s final consumer sentiment reading will be posted sometime next week. It too is almost certain to hold at very low levels. It remains to be seen if this will be a problem for the economy or the market though. Plenty of people are thinking and saying one thing yet seemingly doing another.
Last but not least, look for last month’s producer inflation numbers on Friday. You might recall that January’s consumer inflation figures continued to drift lower, but producer inflation rates haven’t exactly been following that trend. It’s absolutely possible for them to continue defying their counterpart’s direction, which of course somewhat weakens the case for the Federal Reserve to lower interest rates.
Consumer, Producer Inflation Rate Charts
Source: Bureau of Labor Statistics, TradeStation
Stock Market Index Analysis
The market had a savior last week… or at least the S&P 500 did. As the daily chart below shows us, despite the somewhat shaky start after the previous week’s rout, the index managed to find support at its 100-day moving average line (gray) at 6,822 to eventually push up and off of it to end the week on a bullish foot. Also notice the volatility index (VIX) at the bottom of the chart also didn’t hurdle what’s become a key horizontal ceiling around 23. This of course works in the bulls’ favor,
S&P 500 Daily Chart, with Volume and VIX 
Source: TradeNavigator
Let’s not get ahead of ourselves here, though. Notice the S&P 500 also didn’t fight its way back above the 20-day moving average line (blue) at 6,917. In fact, the 20-day average line continues to move toward a convergence with the 50-day line (purple), with both moving toward the 100-day line. The shorter two lines could still easily cross under the longer-term indicator, serving as a sell trigger, and making last week’s modest 1.1% gain nothing more than a short break from the weakness that’s been trying to develop since the beginning of the year, and finally made some measurable progress a couple weeks back.
Here’s the weekly chart of the S&P 500 for a bit more perspective. Note that even though the index ended up logging a gain for the shortened-trading week, it still briefly slipped under the rising support line (pink) that’s been in place since June of last year. The bears ARE testing the waters, and it’s not likely to be a coincidence that it’s been happening more and more earnestly after stalling at a horizontal resistance level at 6,996.
S&P 500 Weekly Chart, with MACD and VIX
Source: TradeNavigator
Here’s the daily chart of the NASDAQ Composite, for what it’s worth. It’s clearly in worse shape than the S&P 500, by virtue of being well underneath most of its key moving average lines. Indeed, the composite’s 20-day line (blue) fell under the 100-day average (gray), and the 50-day moving average line is about to do the same. Even if the NASDAQ gained a little ground last week, these moving average crossunders ultimately point to a bigger-picture shift out of a bullish trend and toward a bearish one.
NASDAQ Composite Daily Chart, with Volume and VXN
Source: TradeNavigator
And, the weekly chart of the NASDAQ Composite puts it all in perspective. The index didn’t exactly move back into the rising trading range it fell out of two weeks ago, after bumping into horizontal resistance around 23,820 for a few weeks. One more losing week could be all that’s needed to really start a selling avalanche.
NASDAQ Composite Weekly Chart, with MACD and VXN
Source: TradeNavigator
At this point, let’s say it’s going to take a weekly close under last week’s low of 22,256.76 AND the VXN moving above its technical ceiling around 28.0 to suggest the market’s not going to be able to sidestep a long-overdue correction.
The only potential wrinkle is the composite’s 200-day moving average line (green) currently at 21,878.6. In the event of more serious selling, it could serve as support level, forcing a bullish turnaround. Also note that that the NASDAQ’s big November low is also right around that mark, augmenting its potential as a technical floor.
If those prospective support lines fail though, there’s little else to prevent things from getting worse from there.
But first things first.