Weekly Market Outlook – OK, Now the Market’s Just Messin’ With Us

There’s a certain school of thought that suggests the stock market proactively tries to frustrate and even confuse as many people as possible most of the time. And, while obviously “the market” is an inanimate idea in and of itself that doesn’t have feelings, opinions, or objectives, the fact that it’s ultimately driven by people that do have feelings, opinions, and objectives is why -- at least on some ways -- it can seem to try and create enough confusion and uncertainty to lead most of the crowd astray. That’s what seems to be happening here and now. You’ll want to navigate things very carefully from here, because stocks as a whole do indeed seem to be trying to fool a whole lot of people.

We’ll show you how and why below, and discuss how to best handle it. First though, let’s look at some of the more important economic data we heard last week, and preview what’s in the lineup for this week.

Economic Data Analysis

Nothing to chart this week, but as you already likely know, the Federal Reserve’s Open Market Committee gave us the expected quarter-point interest rate cut on Wednesday. The target Fed Funds Rate now stands between 3.5% and 3.75%. This is what most investors thought they wanted. Now we’ll see if they can stomach all the reasons behind the belief that we actually needed a rate cut here. The next scheduled opportunity to change interest rates is in late January. Most traders are betting the FOMC stands pat.

Everything else is on the grid.

Economic Data Report Calendar

Source: Briefing.com, TradeStation

An important handful of economic reports that were delayed due the federal government’s shutdown will continue to surface this week, beginning on Tuesday with a look at last month’s jobs report. Economists believe we only added 50,000 new jobs last month, which won’t be enough to prevent the unemployment rate from ticking up ten basis points to 4.5%. And honestly, all things considered, that’s still pretty good.

Unemployment Rate, Payroll Growth Charts

Source: Bureau of Labor Statistics, TradeStation

Also on Wednesday we’ll finally be hearing October’s result sales data. They should be up, although only modestly. Still, even slow and steady shallow progress is a win in this challenging environment.

Retail Sales Charts

Source: Census Bureau, TradeStation

On Thursday look for last month’s consumer inflation data, more or less telling us if the FOMC made the right decision last week to cut interest rates. It probably didn’t, given expectations that both core and non-core inflation is likely to hold at 3.0%, which is slightly above the Fed’s target range (lower interest rates could easily fuel inflation), unless the FOMC sees an economic headwind or hiccup on the horizon stemming from the recent government shutdown or turbulence in China… or rekindled economic trade tensions.

Consumer, Producer Inflation Rate Charts

Source: Institute of Supply Management, TradeStation

We’re assuming November’s producer inflation numbers are coming next week, although they’re not on any schedule yet.

Finally, on Friday we’ll hear November’s existing home sales, although there’s not likely to be any change from October’s pace of 4.1 million. Of course, that’s still pretty low in the grand scheme of things.

New, Existing Home Sales Charts

Source: National Assn. Realtors, Census Bureau, TradeStation

There’s no word on when we’ll hear September’s (or October’s, or November’s) new-home sales figures from the Census Bureau, which will tell us if August’s surge was a fluke. In fact, there’s a chance we just won’t be getting some of those numbers at all to help put the existing-home sales numbers in perspective. There’s a food chance we’ll hear them the week after the one ahead.

Also on Friday look for the third and final reading on the University of Michigan’s sentiment measure for December. It should be up just a bit, but still at unusually low levels.

Consumer Sentiment Charts

Source: National Assn. Realtors, Census Bureau, TradeStation

The Conference Board’s look at consumer confidence is slated foe the week after this one.

Stock Market Index Analysis

If you don’t normally believe that the stock market is a living entity that tries to confuse and frustrate you into making a mistake, last week’s action -- particularly following the action for the past few weeks -- just might change your mind.

We kick things off this week with a somewhat zoomed-in look at the daily chart of the NASDAQ Composite, since it plainly makes the point. What used to be a support line (yellow, dashed) has clearly turned into technical resistance, but the now converged 20-day and 50-day moving average lines (blue and purple, at 23,100) are also now obvious support, halting Friday’s sizeable selloff in its tracks. It even pushed the index up and off a little from its intraday low. The NASDAQ is now very much “stuck in the middle,” and could still easily move beyond either one of these barriers. Of course, it isn’t doing so yet.

NASDAQ Composite Daily Chart, with Volume and VXN

Source: TradeNavigator

The daily chart of the S&P 500 looks similar, even if not identical. Its technical ceiling as a horizontal one at 6,909, where it peaked in late-October and then again late last week. Clearly traders don’t want to push beyond that market, retreating from it pretty aggressively on Friday without any particular clear prompting other than some profit-taking on inflated AI stocks headed into the weekend. Of course, easily-triggered profit-taking is what you’d expect to see from a market that’s looking for a reason to go through a much-needed correction.

S&P 500 Daily Chart, with Volume and VIX

Source: TradeNavigator

Also note the S&P 500 remains above its also-now-converged 20-day and 50-day moving average lines (blue and purple), at 6,771. Also also notice neither of the volatility indexes popped on Friday, nor did volume surge to above-average levels. Despite the size of the selloff, it’s not like this dip can be called a convincing majority option. It appears most people are waiting on the sidelines to see whether it’s the technical ceilings or the technical floors that break first.

Here's the weekly chart of the NASDAQ Composite for some additional perspective. As you can see here, even if the index had broken below the support at its 50-day moving average line there’s still potential support at the midline of the bullish channel that extends all the way back to 2023. That’s bullish. The lingering MACD crossunder isn’t. In fact, the MACD indicator is increasingly bearish.

NASDAQ Composite Weekly Chart, with MACD and VXN

Source: TradeNavigator

Just don’t read too much into anything here. The composite could fall all the way back to the lower boundary of the long-term bullish channel -- where the 200-day moving average line (green) currently is -- and still not shift from a bull market into a bear market. That would only be about a 13% tumble from the recent peak. That being said, a 13% pullback might be exactly what’s needed here to take some froth off the market here, and act as a proverbial “reset” for the bigger bull market that’s still well underway. It’s still going to be tough to tack on more gains from where the market presently sits.