Another lousy week, with each one seemingly worse than the last now. When all was said and done, the S&P 500 lost 2.1% last week to close at a new multi-month low on Friday.
There’s an argument to be made that the selloff was so ugly by Friday that the correction has run its full course. It’s just not a good argument. Although we are apt to see something of a dead cat bounce early this week following two very bearish sessions to end last week, we’ve not yet seen what looks like a true capitulation. One more leg lower should be enough to inspire such bottom-making panic.
We’ll look at this idea in some detail in a moment. Let’s first work through last week’s economic news and then preview what’s in the lineup this week.
Economic Data Analysis
There was really only one report of any major interest released last week. That’s the University of Michigan’s consumer sentiment data. Although not yet shown on out chart below, it fell from February’s reading of 56.6 to 53.3 for March,
Consumer Confidence Charts
Source: University of Michigan, Conference Board, TradeStation
The Conference Board’s consumer confidence report for March is coming on Tuesday of this week. It’s expected to sink too, extending a prolonged, choppy downtrend that’s understandable, yet bearish all the same.
Everything else is on the grid.
Economic Data Report Calendar
Source: Briefing.com, TradeStation
This week gets going in earnest on Tuesday, with two separate looks at home prices as of January. As you can see, both the Case-Shiller Index and the FHFA Home Price Index have recovered from last year’s early lulls and are trending higher again, as they’re apt to do for January. Just bear in mind these charts only represent transaction pricing. They don’t indicate total transaction counts, which remain down.
Home Price Index Charts
Source: Standard & Poor’s, FHFA, TradeStation
On Wednesday look for last month’s retail sales data, which likely reversed January’s surprise -- albeit slight -- lull. Regardless, it’s impressive to see this data continuing to inch upward in the bigger picture, given that the bigger picture backdrop is actually more than a little alarming. It will be interesting to see if the conflict in the Middle East and subsequently-higher gas prices is prompting consumers to cut back on other fronts.
Retail Sales Charts
Source: Census Bureau, TradeStation
Also on Wednesday we’ll hear the Institute of Supply Management’s update on the nation’s manufacturing activity index. We’ll likely see a slight lull, but it should also remain above the key 50 level. More to the point, it’s likely to retain most of January’s big jump.
ISM Manufacturing, Service Charts
Source: Institute of Supply Management, TradeStation
Look for the ISM’s look at March’s services activity index later, which is also still moving in a positive direction despite the troubling backdrop.
The big Kahuna, of course, is Friday’s jobs report for March. You’ll recall we saw a net loss of jobs (-92K) for February. Economist believe we’ll gain about half of those back this time around, yet that still probably won’t be enough to prevent the unemployment rate from edging up another 10 basis points to 4.5%.
Payroll Growth, Unemployment Rate Charts
Source: Department of Labor, TradeStation
Of course, there’s no room for any degree of disappointment with the jobs report.
Stock Market Index Analysis
We start this week’s analysis with a look at the weekly chart of the S&P 500, mostly for perspective. As you can see, the selling’s really picking up some momentum now, with the index losing 2.1% last week to fall to a multi-month low. That tumble has not only taken the S&P 500 9% below its all-time high reached in January, but below a minor 23.6% Fibonacci retracement line. That’s some pretty serious damage, opening the door to even more selling, of course.
S&P 500 Weekly Chart, with MACD and VIX
Source: TradeNavigator
There’s a counter-interpretation of the message being delivered by last week’s action though. That is, things got so bad that they’re actually good, meaning the selloff has run its course, only leaving behind the possibility of a long-lived rebound. And, maybe that’s how things will pan out.
But, that’s the less likely long-term outcome. More realistically, after a bit of bullish pushback early this week following last week’s drubbing, there’s at least one more bearish leg to suffer.
There’s a couple of supporting reasons for this theory. The underlying argument is the same though. That is, we’ve still not seen a major “blowout” capitulation that’s so often seen at a major bottom. Capitulations are usually accompanied by a strong spike in volume, and a surge from the Volatility Index (or VIX) at the bottom of the weekly chart above. The VIX is rising, but we’d expect to see something more along the lines of what we sew in early-2025 to say the final low has been made.
There’s also the not-so-small detail that the S&P 500 itself didn’t test an established technical floor and then start pushing up and off of it. The 38.2% Fibonacci retracement level remains the odds-on favorite for that role. A slide back to that level at 6,170 would be nearly a 12% pullback, more than qualifying as a correction that wipes the slate clean, so to speak.
Here’s the daily chart of the S&P 500, which verifies that there was never any real volume surge behind last week’s selling that would be consistent with a bottom. There’s something ese worth noting, however, with the daily chart. That’s the fact that the index tested its 200-day moving average line (green, circled) at 6,635, and both times failed to cross back above it before the rug got pulled out from underneath it.
S&P 500 Daily Chart, with Volume and VIX 
Source: TradeNavigator
If-and-when the 20-day moving average line (blue) falls under the 200-day line (green) -- which should happen soon -- both will be even tougher to move back above…
… although we do expect such a test sooner than later. As was noted, last week’s pullback was sizeable, losing 4.2% from Monday’s peak, and leaving a gap between Thursday’s low close and Friday’s open at the high. The bulls are likely to push back, and maybe even retest the 200-day line as a ceiling. It’s just unlikely that move will go anywhere. The market’s not quite ready for that.
Here’s the weekly chart of the NASDAQ Composite, just for good measure. It tells the same story. That is, the volatility index hasn’t yet spiked, or peaked. And, we’ve not yet seen a surge in volume that’s usually seen at a bottom.
NASDAQ Composite Weekly Chart, with MACD and VXN
Source: TradeNavigator
Also note that the NASDAQ hasn’t bumped into a major technical floor either, like its 38.2% Fibonacci retracement line at 20,553.
Don’t be surprised if you see all of these things happening right around the same time. That’s not a bad thing though. That should be a bigger-picture buying opportunity.