Weekly Market Outlook - We're Still Just One Bad Day Away From Disaster
Another week, another loss... though last week's loss was very slight thanks to Wednesday's bounce. With the S&P 500's 0.2% setback last week it now sits 6.2% under its high hit three weeks back. It also sits below almost all of its most critical technical floors. Santa Claus better come this week (and leave something besides coal in traders' stockings).
We'll show you just how close to the brink of breaking stocks are in a moment. Let's first look at last week's wave of economic news, and then preview what's coming this week. Spoiler alert: There's nothing redeeming about the real estate arena right now.
Economic Data Analysis
It was a busy week, and as was noted, a particularly buy week for real estate data; many investors probably wish it wasn't.
On Tuesday we heard last month's housing starts and building permits figures. Starts came in again at 1.43 million, but permits slipped quite a bit from 1.51 million to a pace of 1.34 million. Both metrics, however, still point to rapidly-waning willingness to build new projects. Then again... well, keep reading.
Housing Starts and Building Permits Charts
Source: Federal Reserve, TradeStation
Sales (mostly) fell too, though that's been the case for some time now. Sales of existing homes fell from October's annualized pace of 4.43 million to 4.09 million last month. But, sales of new homes actually edged a little higher, from 605K to 640K. Even so, interest in purchasing any home is currently very, very low.
New, Existing Home Sales Charts
Source: National Association of Realtors, Census Bureau, TradeStation
Although they're clearly backing off on the idea of buying a home, consumers are generally starting to feel a bit better about the future. The Conference Board's measure of consumer confidence edged up from 101.4 to 108.3 last month, with the University of Michigan's sentiment index making a similar move. While both are still relatively low, it's encouraging -- and broadly bullish -- to see both remaining on the rise.
Consumer Sentiment Charts
Source: Conference Board, University of Michigan, TradeStation
Everything else is on the grid.
Economic Calendar
Source: Briefing.com
This holiday-shortened week won't give us much, but it will round out the real estate picture with updates of the S&P Case-Shiller Home Price Index and the FHFS Home Price Index on Tuesday. Both are likely to maintain their new downtrends. Indeed, both could accelerate the current downtrends.
Home Price Charts
Source: Standard & Poor's, FHFA, TradeStation
The Case-Shiller and FHFA reports coming this week are for October, which was before other real estate metrics started to confirm this sliver of the economy is hitting a wall. Hard. Don't be shocked to see these downtrends actually accelerate.
Stock Market Index Analysis
The downtrend that's been underway since January's high is still alive.
That's the overarching takeaway from last week's loss, which marks the third weekly loss in a row. For a brief time in October and November it looked as if the market was finally ready to snap out of its bear market and begin a new one. As the weekly chart of the S&P 500 below shows us though, the resistance line that's been holding the index down for months is still -- ultimately -- keeping the S&P 500 from recovering.
S&P 500 Weekly Chart, with VIX and Volume
Source: TradeNavigator
Here's a close-up, detailed look using the daily chart of the S&P 500. Notice how the index broke under its 50-day moving average line (purple) at 3890 a week earlier, and remained below that level for most of last week. That's the last of any really meaningful support lines that (1) could have stopped the bleeding, and (2) can be used as a pushoff point for any recovery effort.
S&P 500 Daily Chart, with VIX and Volume
Source: TradeNavigator
The weird part? The volatility index (or VIX) is still falling too... with the market. Generally speaking, the VIX moves in the opposite direction of the market. Part of this lull can be chalked up to the approaching holiday, which tends to curb the interest in trading that buoys volatility indexes. Even so, with the VIX nearer a major low than not, there's still a lot of pent-up risk of the market selling off to unwind the excessive confidence signaled by the VIX's low levels.
The NASDAQ Composite is in a similar amount of trouble, though there's one last bastion of hope for the composite. That's the floor at 10,305, near where the NASDAQ has found support a few times since October's low. Until and unless the index falls under that line, the market's still got a fighting chance at recovering without sinking any further.
NASDAQ Composite Daily Chart, with VXN
Source: TradeNavigator
The only index currently on the bullish side of at least a few key lines is the Dow Jones Industrial Average (and that may only be because investors are seeking out safer blue chips here). Indeed, the Dow looks like it's finding support at its 50-day moving average line (purple), having touched it four of the past five trading sessions without closing it under it once during that time. Also notice the Dow Jones Industrial Average is holding above most of its key moving averages.
Dow Jones Industrial Average Daily Chart, with Volume
Source: TradeNavigator
That said, notice how the volume behind Friday's gain for the Dow was remarkably light. A lot of that's got to do with the fact that we were heading into a long holiday weekend and trading was light. It may also, however, simply say that the apparent bullish conviction to own blue chips is more anemic than it seems. The S&P 500's as well as the NASDAQ's total volume on Friday was actually, easily in line with their recent averages.
Either way, stocks are on the defensive here. If the S&P 500 falls below last week's low of 3764.5 or of the NASDAQ slips under 10,305, it could kick-start a wave of selling.
The good news is we're now moving into the time of year we usually see a Santa Claus rally... between Christmas and New Year's. That might be enough to drag the market up and over several key technical hurdles and put a bigger-picture rebound into motion. The bad news is, Santa Claus rallies are never guaranteed.
The smart-money move for right now may be simply doing nothing and instead just waiting for one side or the other to tip their hand.