Weekly Market Outlook – The Bulls’ Hesitance Speaks Volumes
Stocks ended up hammering out another win last week, but the undeniable lethargy can’t be ignored. The few bulls that were buying in were hesitant to do so. It’s as if they’re hesitant to do so, knowing or sensing a serious challenge is on the horizon. It just needs a catalyst.
More to the point for traders trying to make some sense of it all, be cautious of trying to force anything here simply because you’re looking for a trade. With the market in no-man’s land, so to speak, this is arguably a time just to hang back and let stocks find their bearings, and then make your move. We’ll show you exactly why in a moment. First, let’s continue to catch up on economic news, including some that had been missing until now.
Economic Data Analysis
Not a lot of new data was released last week, but we did get October’s economic activity numbers from the Institute of Supply Management. Manufacturing activity fell, all but confirming the apparent lull since January’s peak is the real deal. Services activity ticked a little higher though, and continues to suggest the economy’s trying to get this half of things going. We really need the manufacturing industries to get going, however, is the U.S. economy is going to truly thrive.
ISM Services, Manufacturing Index Charts
Source: Institute of Supply Management, TradeStation
The Federal Government is still playing catch-up. Last week we finally got September’s capacity utilization and industrial productivity data from the Federal Reserve… although it unsurprisingly wasn’t inspiring. Production was up just a little from August’s lull, but only a little, while capacity utilization fell, coming up short of expectations.
Industrial Production, Capacity Utilization Charts
Source: Federal Reserve, TradeStation
Like the ISM data, the Fed’s economic barometers are sending a mixed message, and even more so given that the Federal Reserve says there’s at least a glimmer of improvement in terms of industrial output. Let’s not jump to any kind of conclusion here just yet.
Everything else is on the grid, including September’s personal income and spending changes. Both are up, and at healthy levels that don’t indicate a dire need for the FOMC to tweak interest rates.
Economic Data Report Calendar
Source: Briefing.com, TradeStation
Unless one of the delayed economic reports from the federal government sneaks is way onto the calendar this week, there’s nothing major scheduled for the week ahead except for one thing, although that one thing is a biggie. That’s Wednesday’s aforementioned decision on interest rates. As of the latest look the market’s betting there’s an 87% chance of a quarter-point cut, which will dial the Fed Funds Rate down to a target range of 3.5% to 3.75%.
Stock Market Index Analysis
The market followed through on the previous week’s bullish reversal last week… sort of. When all was said and done, the S&P 500 advanced 0.3%. That’s not much. Perhaps even more alarming, however, is the lack of volume behind the feeble effort, and the fact that the effort slowed even further when the index’s record high of 6,920. Is there something about this potential technical ceiling? Are traders looking for something they can use as an excuse to turn this rebound effort around before it ever really gets going?
S&P 500 Daily Chart, with Volume and VIX 
Source: TradeNavigator
And the NASDAQ Composite’s daily chart looks similar, albeit with one noteworthy difference. That is, last week’s 0.9% gain still didn’t push the index up enough to test its late-October peak. It did, however, test -- without breaking above -- what had been a reliable support line (yellow, dashed) going all the way back to May. Has this line since turned into a technical ceiling? It certainly looks like it has.
NASDAQ Composite Daily Chart, with Volume and VXN
Source: TradeNavigator
Perhaps more than anything though, there’s even less bullish volume behind the NASDAQ’s gain than there was with the S&P 500, once again suggesting there’s actually very little conviction behind this effort. The only thing keeping the advance alive may be expectations of bullishness for what’s usually a bullish time of year.
And that’s not an assumption or guess. The data supports the claim. As the chart below illustrates, the latter half of December is usually strong in a bull market, but the S&P 500 is already well above the norm at this point in time for the typical bullish year. (This is of course may be a big part of the reason the bulls are hesitating here.)
S&P 500 Average Yearly Cumulative Performance
Source: TradeNavigator
No weekly chart of either index this week… not much point. They don’t show us anything we can’t already see from the daily charts.
So, this is essentially a judgment call … much more so than usual, anyway. Traders are still acting like they’re looking for any evidence that stocks can’t go any higher, so much so that they’re making one. Their chief challenge is that no one’s had enough guts yet to deal a proverbial death blow that would get that bearish ball really rolling. That would be a break below the 100-day moving average line (gray) for both indices. The bears got close to that market a couple weeks ago, but didn’t pull the trigger when it really mattered. That prospect is still very much on the table though, even if traders have already decided December is going to remain as bullish as it usually is. The bigger challenge to this prospect remains the fact that the market is still so technically overbought -- and overvalued.
Bottom line? The market’s not tipping its hand here; it may not even know what it wants to do next. And it’s further confused by the calendar. Just sit tight for now and don’t try to force anything. We’ll get some meaningful clarity soon enough.