Weekly Market Outlook – Housing Data Important

 Most of you most likely already have them filed, but just in case, don’t forget today’s the tax filing deadline. As for the market…


It was another modest loss last week; stocks gave up about half of a percent, though the major indices did manage to push up and off their lows at a key inflection point. The move offers a little – though not a great deal of – hope for the bulls.  

We’ll slice and dice the details below. First, let’s run own the bigger economic picture. 

Economic Calendar

It was a busy week…. too many numbers to hit all of them. Here are the highlights.

* Retail sales were up 0.4% last month with cars, and up 0.8% not counting autos. Not bad. What’s really amazing about retail sales, however, is the detail you’re not hearing. As of last month, total retail sales (by dollar) for the U.S. are back at record levels.

* Though continuing claims fell a little to 3.73 million two weeks ago, last week’s initial claims unexpectedly jumped to 412K. Though something worth watching, the bigger-picture trend here is still a decidedly downward-sloped one. 

* Inflation is still in the rise, though not rampantly. PPI rose 0.7% last month, while the CPI figure advanced 0.5%. The ‘inflation rate’ now stands at 2.68%.

* Industrial production grew by 0.8% last month, and capacity utilization rose to 77.4%. Both continued long-standing upward trajectories, and as such, both remain bullish for the long haul.

Here’s the whole list, and what’s coming next week.

Economic Calendar

There’s not a lot in the pipeline, but what is in store this week will really flesh out some more details about the real estate/construction market. 

* Housing starts and building permits are both expected to have grown last month, but we’ll know for sure on Tuesday.

* On Wednesday we’ll hear how many existing homes were sold in March; the pros are looking for 5.0 million, which will further extend that trend.

* Initial claims and continuing claims are due on Thursday (as always)… the downtrend is expected to persist. 

S&P 500

On Thursday morning things looked bleak. The S&P 500 Index (SPX) (SPY) had fallen back under the 20-day and 50-day moving average lines after the March rally faded away. By Friday afternoon, the SPX was back above those key moving averages, and the recovery effort has unfolded on rising volume.  

Where’d the bullishness come from late last week that was non-existent for the prior five trading days? Good question. The more important question, however, is whether or not it will persist. Based on momentum, yes, but that’s a leap of faith you don’t want to take lightly.

As it stands right now, the S&P 500 is 9.2% above its 200-day moving average line at 1208. Though that’s not a wild extreme, it’s pushing the limit. 

Moreover, that disparity followed a separation of 15.1% between the SPX and the 200-day line from February 18th. That is an extreme, and sure enough, that did jump-start a contraction. Though the 9.2% separation is a little less tense, the same pressure that began reeling in the indices in late February is still reeling it in today… a reversion to the mean, when given enough time. Translation: the gap between here and the 200-day average line needs to be filled eventually, one way or another. 

All that being said, even the looming downside isn’t yet all that awful. If there’s one thing solid enough to at least expect and make small bets on with the current chart, it’s that the combination of the lower Bollinger band and the 100-day moving average line (gray) around 1281 makes for a very good floor. If you don’t believe, just go back to mid-March’s bounce and see where the buyers stepped in again (in spades). 

Translation – even if we do dip from here, it doesn’t necessarily merit all-out defense. What happens around 1281 will be the key. 

On the flipside, until and unless the market can actually clear its upper Bollinger band and/or prior highs, even bullishness from here won’t mean much. Yes, we’re pretty much stuck in no-man’s land until we get a real catalyst.

Don’t sweat the VIX’s stall last week, and Friday’s dip to multi-week lows. It was expiration week, and skewed the underlying values that make up the VIX index. 

SPX & VIX Daily Chart

A look at a weekly chart of the SPX paints a slightly less compelling picture. Yeah, once again we can see a push off the lows and a little but of bullish momentum. But, we can also see just how overextended the broad market really is after the August-February runup, and how much downside room there is. It’s on this chart we can also tell that in the grand scheme of things, it’s not like buying volume is through the roof.  

SPX & VIX Weekly Chart

Bottom line: This is one of those scenarios where the best move to make may be to not make a move at all…. at least not yet. Let’s wait for one side of the other to commit or make a mistake, and then act. 

Sector Performance

Though the market was basically flat last week, there were come clear winners and losers on the sector front. 

No surprises about the leader – energy (XLE) is still blazing a trail. Yes, technically speaking it was the biggest loser for the week, but all of that big loss was taken on Monday. The rest of the week it was the leader of the rebound, further extending a multi-month leadership role. It was the consumer staples group that led the race on a mathematical basis though. 

On the flipside, the financial (XLF) sector was the biggest loser (aside from energy) last week, but it was the technology (XLK) sector that waved the biggest red flag. It’s been quietly sinking since the end of March, without even a hint of bullish interest. 

All that being said, this week we’re going to take a major step back and look at how the sectors have performed since November 30th [the dark red line in the middle is the market average]. It’s with this look we can tell just poorly technology has held up, and just how well energy has been doing. 

However, there are other trends that really stand out here on this longer-term chart. The first one is just how reliably bullish the consumer staples (XLP) – last week’s actual winner – has been since mid-March. Considering it was a laggard for so long, this new-found strength likely has some life left. 

Everything else is still a bit of a toss-up.

Sector Performance Chart

Trade Well,
Price Headley