The worst day in weeks led to the worst week in months. Specifically, Friday’s 2.7% stumble from the S&P 500 left it at a loss of 2.4% for the five-day stretch… the worst week since early April, right before the market hit bottom and began an incredible rally. That’s unlikely this time around though. Then, the market had the advantage of being able to start the effort out following a rather dramatic selloff. Now, stocks are still near record highs, and still priced at very frothy valuations. If anything, a slew of signs are now suddenly warning of a pullback. We’ll see if the bulls are ready to give it to the bears.
The irony? The sheer speed and scope of Friday’s selloff is arguably the best thing going for the market at this time. This “too much, too fast” dip already has the bargain hunters sniffing around.
An end to the government shutdown and a little less-aggressive tariff posturing is of course the key. It looks like most traders were expecting and end to the shutdown by the end of the week. When they didn’t get it on Friday and instead were treated to rekindled tariff worries, they decided en masse to take a bunch of their risk off of the table in front of the weekend. It’s hard to blame them, even though it does make things difficult to get a read on from here.
We’ll try to figure out the market’s plausible paths from here. First though, let’s look at last week’s economic reports and preview what’s coming this week.
Economic Data Analysis
Actually, there weren’t any major economic announcements released last week, mostly due to the shutdown. Even without a shutdown though, there wouldn’t have been much. We remain far more interested in last month’s jobs data, which was due a week ago, but has been delayed by the shutdown. We’ll take our look when we finally have the data in-hand.
Everything we did hear is on the grid.
Economic Data Report Calendar
Source: Briefing.com, TradeStation
We’ll assume we’re going to hear everything as scheduled this week. Just bear in mind that we’ll get nothing from the federal government’s offices and agencies until the shutdown ends. Once it does end though, a bunch of reports are all going to be unleashed at once.
Assuming everything is posted when due, the party starts in earnest on Thursday with a look at last month’s inflation figures. We don’t have any predictions for where things are apt to point this time around, but as of a month ago prices were clearly edging higher again.
Consumer, Producer Inflation Charts
Source: Bureau of Labor Statistics, TradeStation
Also on Thursday keep your eyes and ears peeled for September’s retail sales report. Forecasts suggest a slight slowdown from August’s progress, but progress is still in the cards all the same.
Retail Sales Charts
Source: Census Bureau, TradeStation
Friday will be just as busy (hopefully), starting with September’s housing starts and building permits. You may recall both fell a month earlier, while permits now appear to be in a full-blown nosedive, underscoring just how much trouble the real estate market is in in the shadow of wildly-high prices. Economists are looking for about the same numbers in September that we got in August, which is anything but a step in the right direction.
Housing Starts, Building Permits Charts
Source: Census Bureau, TradeStation
Shortly after that on Friday morning well get last month’s look at the nation’s industrial activity and use of the country’s manufacturing capacity, from the Federal Reserve. As is the case with September’s starts and permits, economists believe factory usage and output are going to roll in at about the same levels again. That’s… not exactly thrilling.
Capacity Utilization, Industrial Production Charts
Source: Federal Reserve, TradeStation
Stock Market Index Analysis
There’s no need to introduce this week’s analysis with words. We’ll just start with a daily chart of the S&P 500, since it speaks volumes. If you’ve not seen it yet, take a seat first, and then take a look. Just, wow.
S&P 500 Daily Chart, with Volume and VIX 
Source: TradeNavigator
The steep selloff took shape after a few unsuccessful attempts to break past a technical ceiling (purple, dashed) that had been holding the bulls back since late last month. And, the stumble also dragged the index under the rising support line (red, dashed) that had been steering it higher since May; every confirmed instance of support and a pushoff of this line is highlighted in yellow. The only “victory” of sorts is that the pullback didn’t pull the S&P 500 under its 50-day moving average line (purple) at 6,528. Then again, perhaps there just wasn’t enough time or enough bears paying attention to do any more damage.
The NASDAQ Composite’s daily chart looks about the same, although curiously, it’s more evident with this index that the bearish volume has actually been creeping higher since the beginning of the week.
NASDAQ Composite Daily Chart, with Volume and VXN
Source: TradeNavigator
In fact, a closer look at the NASDAQ’s breadth and depth (advancers vs. decliners, and bullish volume vs. bearish volume) says the composite’s volume and overall “lean” has actually been tilted in a bearish direction since late last month. Were traders planning on -- or even counting on -- something like this happening sooner than later, and finally decided they had the catalyst they needed? That’s kind of what it looks like. If that is the case, don’t be surprised to see this one-day selloff evolve into the long-overdue correction, even if the bulls push back a bit to start this week.
NASDAQ Advancers/Decliners, Bullish/Bearish Volume
Source: TradeNavigator
Perhaps the most noteworthy detail worth highlighting on the charts of the S&P 500 and the NASDAQ Composite above, however, is that their volatility indexes (the VIX and VXN, respectively) both surged higher, yet are still miles below levels that would suggest fear has peaked and a trade-worth bottom has been made. The surge of the VIX and VXN actually suggests many traders didn’t see this stumble coming quite like it did exactly when it did, even if the trading crowd sensed this setback was in the offing.
Either way, this has more bearish undertones and implications than not.
Here's the weekly chart of the S&P 500 for a little more perspective, but also to serve as a reminder for why it was so easy to up-end the market with not-entirely-surprising news. It’s difficult to not notice how much more room and reason there is for profit-taking.
S&P 500 Weekly Chart, with MACD and VIX 
Source: TradeNavigator
That being said, it’s the weekly chart we’ll be watching most closely from here for confirmation that there’s more downside in store. If a bigger bearish move is in the cards, it will be signaled by the VIX’s move above its technical ceiling around 23 (red, dashed) paired with the S&P 500’s slide under its 50-day moving average line and a bearish cross of the weekly chart’s MACD lines… which just got a whole lot closer last week.
Sure, it’s certainly possible that the market could slightly recover this week, while the VIX peels back a bit. Just don’t jump to conclusions about that move. It wouldn’t mean we’re out of the woods yet. It’s just the result of the bulls and the bears regrouping, and considering their next move. Both sides could easily end up agreeing a correction is still the path of least resistance for now.
It’s too soon to talk about downside targets, simply because there’s no certainty any more real downside is in store. If it becomes undeniable though, we’ll talk about technical floors then, starting with the 200-day moving average line (green) at 6,050.