Weekly Market Outlook – Just as Scripted, the Bulls Hold the Line. Ditto For the Bears.
If it feels like the market is yankin’ your chain, that’s because it is. At least in a manner of speaking. For the umpteenth week in a row, stocks reversed course on an intraweek basis, defying any wish that it would just pick a direction and keep moving in it. We’re still as on-the-fence as we’ve been since mid-January, without any clear bullish or bearish clues. Mostly what the bulls are seeing is a lack of bearish conviction, and vice versa.
Still, the lines in the sand are clear.
We’ll detail where those lines are in a moment. For now, let’s work our way through last week’s biggest economic announcements and preview what’s coming this week.
Economic Data Analysis
The party started on Tuesday with a look at December’s home price trends. As has been the case for some time now, the Case-Shiller index continues to show improvement, although the more geographically-diversified FHFA House Price Index does as well. Although fewer total homes are transacting, the ones that are continue to see healthy sales prices. At least this aspect of the economy is holding up.
Home Price Charts
Source: Standard & Poor’s, FHFA, TradeStation
Rounding out the prior week’s third and final look at the University of Michigan’s sentiment index score for February, last week we learned the Conference Board’s consumer confidence reading improved from January’s upward-revised figure of 89.0 to February’s reading of 91.2. Still, that’s not enough to shake either out of their current downtrends. (Note that the chart below doesn’t yet show either sentiment data for February. They’re only plotted through January.)
Consumer Sentiment Charts
Source: Conference Board, University of Michigan, TradeStation
Finally, on Friday we got January’s producer inflation figures. They continue to dwindle, although remain above the Federal Reserve’s ideal target. The direction of the trend can be as important as the absolute level though, so the FOMC may still feel comfortable enough to go ahead and lower the Fed Funds rate a couple of times this year.
Consumer, Producer Inflation Rate Charts
Source: Bureau of Labor Statistics, TradeStation
Everything else is on the grid.
Economic Data Report Calendar
Source: Briefing.com, TradeStation
This week’s data starts in earnest on Monday, with the Institute of Supply Management’s manufacturing index report, to be followed on Wednesday with an update on the services index. Economists are looking for a slight lull from both, but only slight. Both should remain above their key 50 levels, and perhaps more encouragingly, both are still in bigger-picture uptrends.
ISM Manufacturing, Services Index Charts
Source: Institute of Supply Management, TradeStation
This week’s big news will of course be Friday’s jobs report. You may recall January’s data was surprisingly good, pulling the unemployment rate down from 4.4% to 4.3% and payroll growth of 130,000 that somehow overcame a slew of layoffs. Forecasts suggests we won’t make quite as much forward progress this time around, but economists do still expect net progress.
Payroll Growth, Unemployment Rate Charts
Source: Institute of Supply Management, TradeStation
Stock Market Index Analysis
Whiplash. Headfake. Indecision. Whatever you want to call it, the market’s lousy with it right now. And even if it’s not confusing, it’s certainly annoying.
This indecision is crystal clear on the daily chart of the S&P 500 below. On Wednesday the index punched through the now-converged 20-day and 50-day moving average lines that had until then been holding it back. Rather than following through, however, it was peeling back by the next day, and fell back under those key lines in the sand on Friday. On the flipside, the 100-day moving average line (gray) at 6,831.9 continues to hold up as technical support. The S&P 500 only needed to touch it once on Friday to start inching higher again.
S&P 500 Daily Chart, with Volume and VIX 
Source: TradeNavigator
Zooming out to a weekly chart of the S&P 500 reminds us that -- technically speaking -- the index has already broken under a technical floor (albeit only slightly). That’s the straight-line support that extends all the way back to May. This isn’t exactly disastrous, but seeing it after the index has repeatedly tested and proven a straight-line ceiling around 6,996 does somewhat bolster the argument that the floor is breaking down under the S&P 500’s increasingly heavy weight.
S&P 500 Weekly Chart, with MACD and VIX
Source: TradeNavigator
The NASDAQ Composite, on the other hand, isn’t behaving quite as impressively. It’s finding better-defined resistance, but doesn’t seem to be finding any discernible support. As its daily chart below shows us, not only is the composite underneath most of its important moving average lines (except for the 200-day moving average line at 22,000). Moreover, those lines are starting to fall underneath one another, with the 50-day moving average line (purple) about two to three days away from falling below the 100-day line (gray) at 23,190 that ended up being Wednesday’s technical ceiling. It all suggests a massive reverse of the bullish momentum that was in place through almost all of last year.
NASDAQ Composite Daily Chart, with Volume and VXN
Source: TradeNavigator
Regardless, the NASDAQ’s got some room between the 23,000 and its 200-day moving average line (green) at 22,000 without needing to make a committed move in either direction. The S&P 500’s got the some option, although it would be naïve to ignore the fact that its 100-day moving average line has stepped up as a technical floor. That doesn’t guarantee it will hold. It’s just worth watching, because it will take a move below that tough support to trigger the next let lower… if there’s going to be one.
All that being said, we still contend the volatility indexes (VIX and VXN) will actually be the best signals of a more serious corrective move. Both appear to be stuck right below straight-line technical ceilings that are being repeatedly tested. Should that resistance fail to hold either volatility index down, this may actually mark the proverbial opening of the floodgates that are still technically closed.