Weekly Market Outlook – A Bit of Bullish Follow-Through, But a Familiar Ceiling is Back in Play
The bulls followed through on the prior week’s reversal effort with last week’s 1.9% advance. Stocks even hit a new record high in the process.
Just don’t read too much into the move. Stocks are still vulnerable here, and overvalued as well. The market could keep climbing from here, but it’s going to be tough, and dangerous.
There’s also the not-so-small matter that the indexes really only started to test its major technical resistance late last week. This is when things begin getting tough.
We’ll look at it all in some detail below. Let’s first look at the economic news that was posted last week despite the government shutdown, and what we might be hearing this week… maybe.
Economic Data Analysis
Although the federal government is still shut down, the Census Bureau was still compelled enough to release last month’s consumer inflation data on Friday. The Social Security Administration needs it to determine and announce its official cost-of-living adjustment for the coming year. Although it won’t go into effect until January, most everyone really needs to know now.
And it’s reasonably tame. Overall consumer inflation fell to a palatable 3.0%, while core inflation edged up to 3.0%. That’s more or less in line with the Federal Reserve’s longer-term target, giving the FOMC the room it needs to continue ratcheting interest rates downward (which it’s expected to gradually do through next year -- more on this in a moment).
Consumer, Producer Inflation Rate Charts
Source: Census Bureau, TradeStation
Note that we didn’t get the producer inflation data for September, which isn’t necessary to determine Social Security’s 2026 COLA. For that matter, we didn’t hear last month’s new home sales last week from the Census Bureau either, although the National Association of Realtors did dish out its sales numbers for September. Sales of existing homes inched up a little to an annualized pace of 4.06 million units, although that’s still rather low.
New, Existing Home Sales Charts
Source: Census Bureau, TradeStation
And as a reminder, although we don’t have the actual figure yet, economists still believe August’s surge I sales of new homes was a one-off that will be unwound once we do finally get September’s confirmed data. Real estate demand remains rather subdued.
Everything else is on the grid.
Economic Data Report Calendar
Source: Briefing.com, TradeStation
We also heard the third and final report on consumer sentiment from the University of Michigan last week, in front of this Tuesday’s look at consumer confidence from The Conference Board. The former edged down a little lower to 53.6 for the month (not shown yet on the chart below), while the latter is expected to do the same this week.
Consumer Sentiment Charts
Source: Conference Board, University of Michigan, TradeStation
There is contrarian potential in this poor sentiment. But, somehow it doesn’t seem like we’re quite there yet.
We’re also going to certainly hear the S&P Case-Shiller 20-City Index update on home prices on Tuesday, although we’ll likely not hear the comparable report from the FHFA on the same day if the government is still shut down at that point. As you might recall, both have been in a bit of a shallow slump for a few months now. This isn’t apt to change much with August’s numbers.
Home Price Index Charts
Source: FHFA, Standard & Poor’s, TradeStation
We’ll also get the aforementioned decision on interest rates on Wednesday of this week… no matter what. As of the latest look the market says there’s a 96.7% chance of another quarter-point cut this time around, with still another quarter-point cut in the cards with December’s scheduled opportunity to lower rates.
In this same vein, although it won’t be a factor in Wednesday’s decision, on Friday we might get September’s personal and income and consumer spending update from the Bureau of Economic Analysis. It’s expected to be more or less in line with August’s numbers, which are nominal, and certainly don’t force the FOMC into second-guessing any past or future rate cuts.
Stock Market Index Analysis
We start this week with a somewhat zoomed-in look at the weekly chart of the S&P 500, since we really need to look at things with a bigger-picture perspective first. Thanks to last week’s 1.9% advance, the index is now at record highs. Notice the VIX also followed through on the prior week’s intraweek (downward) reversal bar, which underscores the bullish argument.
S&P 500 Weekly Chart, with MACD and VIX 
Source: TradeNavigator
Except, the problem that’s been in place for some time now is still in place. That’s the sheer frothy, lofty levels that stocks are trading at now. There doesn’t appear to be much room or reason for the market to continue making gains.
And that headwind may already be blowing enough to put an immediate end to this bullishness. Friday’s high essentially materialized at a technical ceiling (purple, dashed) that connects all three major highs since mid-September (marked with red arrows on the daily chart below). The daily chart also shows us there’s was never really major volume behind any of last week’s “up” days.
S&P 500 Daily Chart, with Volume and VIX 
Source: TradeNavigator
The daily chart of the NASDAQ Composite looks about the same. It’s bumped into a near-term technical ceiling of its own; the sheer span, speed, and distance of the rally from April’s low are now forcing a slowdown of the bullish effort… with less-aggressive higher highs; the bullish trading range is narrowing.
NASDAQ Composite Daily Chart, with Volume and VXN
Source: TradeNavigator
So this is frustrating. The overall trend remains bullish, so we do as well. But, it’s not right. It shouldn’t be happening like this, or at this time. Yet it is.
The good news (still) is, the rally’s technical framework remains crystal clear. Both indexes have firm technical support. The NASDAQ Composite’s is the red, dashed straight line that connects all the lows since May. The S&P 500’s is – at worst – the 50-day moving average line (purple) currently at 6,595. Anything under those levels could easily start a more damaging selloff, provided it also occurs when the VIX and VXN punch through their technical ceilings they didn’t actually punch through a couple of weeks ago. Anything less than that, and the technical trend remains bullish.
The looming vulnerability is still undeniable though.