Weekly Market Outlook – The Bulls Continue Grinding… But It Works Somehow
The market made bullish progress for the first full trading week of the new year, reversing the previous holiday-split week’s pullback. The S&P 500 technically reached a new record high, in fact, and closed at a record-high close on Friday as well. Impressive.
Just don’t read too much into last week’s gains though. The NASDAQ isn’t following suit, and it’s the one that should be leading the way. Indeed, in some ways the recent shape of both index’s charts still looks like both could be setting up a corrective move. They just need the right technical trigger.
We’ll discuss these setups and their technical triggers in a moment. Let’s first run through last week’s economic reports and preview what’s in the lineup for this week. The good news is, we’re pretty much caught up with all the postponements stemming from October’s shutdown of the federal government. The bad news is, some of the news we’ve been waiting on isn’t exactly bullish.
Economic Data Analysis
The week started out with last month’s numbers from the Institute of Supply Management. Manufacturing activity fell just a bit rather than edging higher, while services activity jumped quite a bit rather than dipping just a hair. Perhaps more telling, the manufacturing barometer is still below the 50 mark that divides forward progress and contraction, while the services index remains above the 50 mark. The thing is, in both cases the ISM indexes’ data is now trending in the direction these levels suggest.
ISM Manufacturing, Services Index Charts
Source: Institute of Supply Management, TradeStation
On Friday we finally got October’s housing starts and building permits. Starts fell, and permits were flat. On balance though, both metrics appear to remain in longer-term downtrends, jibing with other clues of weakness from the real estate market (like home sales, for instance).
Housing Starts, Building Permits Charts
Source: U.S. Census Bureau, TradeStation
Friday’s big news of course was December’s jobs report, which despite much of the rhetoric surrounding tepid payroll growth of only 50,000 jobs, technically showed progress in the form of a pullback of the unemployment rate of 4.4% from November’s reading of 4.5%.
Payroll Growth, Unemployment Rate Charts
Source: Bureau of Labor Statistics, TradeStation
The numbers you’re not seeing (that played a role in creating these numbers) are a slight decrease in the size of the total labor force paired with a relatively bigger decrease in the number of people who are officially unemployed… despite what seems like an uptick in layoffs.
Everything else is on the grid.
Economic Data Report Calendar
Source: Briefing.com, TradeStation
This week is going to be another big win, beginning on Tuesday with a look at last month’s consumer inflation figure followed by producer inflation on Wednesday. Economists are more or less looking for more of the same this time around, and that “same” is more or less in-line with target levels. Still, at least on the consumer side of the table it looks like inflation is drifting downward. There could be some room for another rate cut or two.
Consumer, Producer Inflation Rate (Annualized) Charts
Source: Bureau of Labor Statistics, TradeStation
Also keep your eyes out for November’s retail sales numbers on Wednesday. Forecasts call for a decent reacceleration of October’s stagnation.
Retail Sales Charts
Source: Census Bureau, TradeStation
We’ll also get last month’s existing home sales update on Wednesday, although December’s new home sales won’t be posted until later this month. Economists believe we’ll actually see some improvement in sales of existing homes, but still not enough to say it’s out of the funk it’s been in since 2023. As for new home sales, we’ll still just have to wait and see if August’s surge was a one-off error or the beginning of something more.
Home Sales Charts
Source: Natl. Assn. of Realtors, Census Bureau, TradeStation
Finally, on Friday we’ll hear about December’s capacity utilization and industrial production. The outlook is for continued flatlining of both measures, although production is at least flattening at relatively healthy levels. The only problem is, we really need to see both metrics making gains for this to be a truly-bullish cue.
Capacity Utilization, Industrial Production Charts
Source: Federal Reserve, TradeStation
Stock Market Index Analysis
The market logged gains last week, reversing the previous week’s slight setback. However, as has been the case so often for a while now, the bears made their stands at well-established technical resistance.
Nowhere is this more evident than with the daily chart of the NASDAQ Composite. Wednesday’s and Friday’s highs near 23,750 merely matched the index’s early December peak, more or less lining up with its late-December high. There’s clearly something about this level.
NASDAQ Composite Daily Chart, with Volume and VXN
Source: TradeNavigator
Also note that the NASDAQ’s rising straight-line support (blue, dashed) continues to steer the index higher with higher lows. And yes, there’s little room left between support and resistance to continue traveling around within from here. Either the bulls or the bears are going to have to make a commitment, and soon. Once they do, it could start a prolonged move that’s now somewhat overdue.
Zooming out to a weekly chart of the composite puts things in more perspective. Namely, it reminds us that despite how technically overbought the NASDAQ may be here, the path of least resistance is still to the upside. The composite is just now pushing up and off of a couple of long-term support lines right now, in fact, one of which is the lower boundary of a bullish channel (yellow, dashed) that extends back to 2024. Indeed, there’s a path for the composite to advance all the way to the 27,000 area (yellow arrow), as crazy as that may seem at this time.
NASDAQ Composite Weekly Chart, with MACD and VXN
Source: TradeNavigator
Of course, we also can’t ignore the fact that the bearish MACD crossunder from November is still intact.
Here’s the daily chart of the S&P 500, which is similar to the NASDAQ Composite’s but not identical. Like the NASDAQ, it logged a gain last week. Unlike the NASDAQ, it managed to make new highs in the process. Still, it’s seemingly stuck under a short-term technical resistance line.
S&P 500 Daily Chart, with Volume and VIX 
Source: TradeNavigator
And the shape of the near-term support and resistance lines (blue, dashed) is potentially important. Although it’s superficially and directionally bullish, this rising converging wedge pattern following such a big runup from April’s low also has a chance of being the proverbial last hurrah…. the final step before a stumble off the cliff, so to speak.
Of course, the bears have had plenty of technical opportunity to start an overdue wave of profit-taking over the course of the past several weeks. They’ve not been able to capitalize on any of them. Indeed, as the weekly chart of the S&P 500 shows us, like the NASDAQ, there’s a pretty clear path up to the upper boundary of a very long-term bullish channel (yellow arrow).
S&P 500 Weekly Chart, with MACD and VIX
Source: TradeNavigator
So what’s the call? As momentum traders (first and foremost), we have to continue leaning in a bullish direction. It would be recklessly, naïve, however, to ignore the risk here. We just need to see both indexes decisively break under the aforementioned technical support before entertaining that prospect, even though we know we’re due for this sort of move sooner than later. Don’t try to apply too much reason in the meantime.