Consumer Confidence Rising – Weekly Market Outlook

Is it ironic that the best week since September and one of the best weeks in years (we’re talking about last week) followed one of the worst weeks in years, and the worst Thanksgiving week since 1932? No, not really. This is just emotion-driven volatility, which means these moves can stop and turn on a dime.  And, they did.

The only thing last week did was put us back to square one… where we probably should have been all along after a heroic October rally (which followed an overblown August selloff). Eventually we’ll work through all this stuff and start trading normally again… with ‘eventually’ being the operative word.

The good news – the bulls are fighting a better fight than the bears, and the market’s once again within striking distance of a true, long-term rally.  Details below;  first, the economy.

Economic Calendar

What a week we had last week in terms of economic data! There’s no way we can hit it all; here are the highlights.

On the jobs front, the economy finally made some serious progress.  The unemployment rate surprised everybody by falling from 9.0% to 8.6%. Granted, a great deal of that drop had a lot to do with the expiration of regular unemployment benefits and the transition to emergency benefits (on which the click is ticking too!), but it’s still some progress. Job creation was strong… 140K more by private employers, and ADP said the number was 206K. Either figure was well up from September’s levels. Claims were slightly up for the week.

Real estate is still a mixed bag. Pending home sale surged 10.4%, while the new home sales rate held steady at 307K.  Buyers are paying on average of 3.6% less for those homes than they did in August though, according to Case & Shiller. FHFA says home prices ticked 0.9% higher in September, however.

Either way, consumers are understandably feeling much better now than they were in October. The Conference Board’s consumer confidence score soared from 40.9 to 56 last month – the best reading since July’s 59.0, which was before the big debt-ceiling meltdown.

Economic Calendar

The coming week is going to be much less eventful in terms of quantity, but not quality. The biggies are factory orders (which should have fallen by 0.4%), and consumer credit (which should be swelled by $7.0 billion again).  In fact, with two back-to-back $7 billion increases in consumer credit, we should be back to the pre-plunge growth trend – before August’s $9.7 billion dip. 

S&P 500

Things were going along just fine for the bulls…. until Friday. Not that the buyers didn’t deserve a break, and not that it wasn’t most likely to happen on a Friday after a very bullish week, but the shape of Friday’s bar is a bit of a red flag.

How’s that? The bulls bid the S&P 500 Index (SPX) (SPY) up to 1260 on an intraday basis, but when push came to shove late in the day, those same buyers let it slip back to a close of 1244.28 – an upside-down hammer formation, made even mare alarming because it happened right as the important 200-day moving average line was approached. Had the 200-day line not been the tripwire back in early November, it may not be a big deal now. It was a tripwire though, and nothing to dismiss. It’s at 1265, and it needs to be cleared first for the bulls to get the proverbial green light.

There’s a bit of an extra challenge to deal with here too… the CBOE Volatility Index (VIX) (VXX) (VXZ). It’s at its lower Bollinger band line, and also acting as if it wants to press upward (bearish for stocks) by virtue of its hammer-shaped bar from Friday. If we see it close above Friday’s close above 27.52 and if we also see the S&P 500 slump under its close of 1244.28 from Friday, look out – it could be trouble.

Of course, Friday’s dip could just be the end result of the fact that stocks gained an average of 7.3% and just needed a break.  Welcome back to “all or nothing” land, where reasons to buy and sell or perfectly black and white, and minds are changed at the drop of the hat.

SPX & VIX Daily Chart

The line in the sand for the bulls is the 200-day moving average line at 1265, while the make-or-break level for the bears is the floor around 1212.  Anything else, and traders are still in the fence.  Fortunately, the DJIA (DIA) and the NASDAQ (QQQ) are offering similar clues that could help us determine where we are exactly.

NASDAQ, Dow Jones Industrial Average

The same basic premise that applied with the S&P 500 applies to the other major indices, though the details are a little different.  For instance, the Dow Jones Industrial Average is actually above its 200-day moving average line at 11,946, but it still has to contend with a major ceiling at 12,177.

The NASDAQ, on the other hand, is still under its 200-day moving average at 2673.  Its 200-day line has also been a bit of a barrier, and until it’s cleared, we can’t be too impressed by any upside effort.

NASDAQ, Dow Jones Industrials – Daily

On the flipside, though the Dow’s last-ditch support level isn’t clear, the NASDAQ’s floor at 2588 is clear.  That’s where the 100-day and 50-day moving average lines have intercepted one another, and done so just a hair under a key floor we saw in late October and early November (red, dashed).  As long as the bulls hold that line, the composite will stay in the hunt.  Anything under that mark, and we need to be concerned.

Q3 Earnings Report

Since we opened this can of worms several weeks ago, we’ll come full circle and close it today.  With all but the last of the S&P 500’s companies having posted Q3 numbers, we know enough to now know earnings were great.  The S&P 500 ‘earned’ a record-breaking $25.55 per share – a 17.9% improvement on a year-over-year basis.  A little over 69% of companies posted positive surprises, and a little more than 21% posted negative surprises [a little less healthy than usual].