The good news is, the weekly losing streak has ended. The bad news is, it only barely ended. The S&P 500 did make a gain last week, but of only 0.52 points. Is this an omen, or just a blip in a bigger downtrend. The truth is, the jury’s still out – this week will tell the tale. The odds, however, still seem to favor the bears. We’ll poke and prod the charts below, but first, let’s start with an economic macro-view.
Busy week last week, so let’s just stick with the highlights.
* Retail sales were up modestly without cars, and down modestly counting cars into the number. Total spending (by dollars) as at all-time highs, though per-capita spending is just back to mediocre levels.
* Producer inflation (core and non-core) were up a little (+0.2%), and consumer inflation was up by the same 0.2%. The ‘inflation rate’ now stands at 3.57%. That’s the highest we’ve seen since October of 2008, and is pressing the limits of how much the economy can take. It’s NOT at levels that all but guarantee a recession though.
* Both capacity utilization and industrial productivity are hanging in there, but have clearly paused their growth/expansion trends. This is the red flag that true long-termers need to keep an eye on.
* Housing starts and building permits both surged last month, by 3.5% and 8.7%, respectively. However, such an increase is nothing unusual for the month, when good weather is likely across the nation. We’re still not seeing any real YOY growth.
* The Michigan Sentiment Index slipped from 74.3 to 71.8 (first preliminary reading). The media really embellished the tumble, but that new reading is simply in-line with sentiment for the last several months. The broad trend isn’t getting better, but it’s not getting worse either.
As you can see, the coming week will be less eventful. Here’s what to keep an eye on; nothing on Monday though.
* The real estate picture gets rounded out on Tuesday with existing homes sales data. The total should have slipped from an annual rate of 5.05 million to 4.78 million.
* The Federal Reserve’s prime opportunity to change interest rates will be on Wednesday’ but no changes from the current 0.25% are expected.
* New and continuing unemployment claims will be announced on Thursday; no significant changes expected.
* Friday will be the biggest day this coming week…. Q1 GDP’s final Q1 number will be posted, along with durable orders. The former should be confirmed at a growth rate of 1.8%, and orders should be up 1.0% for May after April’s 3.6% dip. Not counting transportation, the increase should be only 0.6% after the prior month’s 1.6% contraction.
S&P 500 Index
The 24th trading week of the year ended up being a wash; the S&P 500 (SPX) (SPY) managed to close 0.52 points above the prior Friday’s close, putting the index at 1270.50 for the week. It wasn’t exactly an encouraging finish to the week though, for a couple of different reasons.
Just for reference, a big part of the intraweek rebound on Thursday was likely fueled by the brush with the 200-day moving average line at 1258. It’s purely a psychological event, but one you still have to respect (since everyone else does). There wasn’t a whole lot of successful follow-through with the bounce on Friday though – stocks closed closer to the lows for the day – so let’s not jump to conclusions yet.
That said, last week we saw something last week we haven’t seen in a long time that was a big reason stocks had been falling…. a lack of bullish volume. Last week’s was the most volume we’ve seen in weeks, and it was bullish. Moreover, that buying volume was swelling on the way up.
Still, the bull-killer here is that fact that the CBOE Volatility Index (VIX) has finally made its way above a key resistance line at 19.10. This is the first real hint that’s suggested investors and traders are actually worrying. Yet, that worry hasn’t peaked yet, so we’ve not likely hit the ultimate bottom. How so? The upper 20-day Bollinger band isn’t acting as a downward reversal ceiling that way it has a few times in recent weeks.
SPX & VIX Daily Chart
To answer the next question, sure – the VIX could rollover on Monday and the bulls could decide that Thursday’s reversal effort deserves another try. From a pure odds perspective though (and that’s the name of the game), no, the sellers aren’t done.
From high to low, the S&P 500 has only pulled back by 8.1%…. less than a normal and healthy correction. A ‘normal’ correction of 10% or more would put the SPX under the 200-day moving average line. There’s the rub though – a move under the 200-day line constitutes a bigger-picture sell signal.
Between the rising VIX not yet being at a peak level, and the fact that the S&P 500 hasn’t yet given us a decent corrective move, only a move under the 200-day average line would bleed off enough overbought pressure to let the market proverbially reset itself.
Needless to say, this week is a pivotal week in a pretty big way.
Just for good measure, here’s a weekly chart. ‘s here you can tell – using the middle of 2010 as a reference – just how much further the market can fall under the 200-day moving average line, and how high the VIX can rise, before a bottom is hit.
S&P 500 – Weekly
It’s kind of amazing when you take a step back and look at the bigger picture. Below is a comparison (based on weekly data) of all the major sectors since the end of November. As you can see, for a change, some sectors gained last week while others still fell.
The ones that rebounded though (consumer goods, utilities, telecom, financials, industrials, and to some degree, healthcare), were mostly defensive names. The aggressive/cyclical areas like technology, energy, and materials) all continued to fall. Point being, the ‘sectors of choice’ are still hinting that investor confidence is still fairly low.
Sector Comparison, since November 26th