SPX Range & Oil Key Juncture – Weekly Market Outlook

Despite Friday’s modest stumble, last week was clearly a good one for the market, bringing it back from the brink of a significant correction and putting it back within reach of a significant breakout.  Yet, as has been the case too many times over the past couple of months, the bulls just couldn’t deliver the knockout blow to the bears when they needed to the most.  This isn’t to say it’s not going to happen.  It is to say, however, it’s definitely not a done deal and a move back lower could well happen.

Economic Data

Though there was plenty of economic information to digest last week, there’s little doubt what the focal point was… Friday’s employment report.  Though it was little changed, it’s still worth exploring.

First and foremost, the unemployment rate edged a little higher, from 5.6% to 5.7%.  Don’t misinterpret that figure though.  There were more employed people at the end of January than there were at the end of December.  It’s just that the size of the labor pool expanded even more than the number of workers grew.

On that note, the Department of Labor reported 257,000 new (net) jobs were created last month, topping estimates of 235,000.  It’s not as strong as December’s 329,000 new payrolls, but it’s progress.  The basic trend here correlates with the similar data from payroll processing company ADP

Wages were up better than expected, reaching 0.5% growth.  The pros were only expecting a 0.3% improvement.  This solid advance unwinds a lot of the worry created when wages fell 0.2% in December.  The Department of Commerce also reported a 0.3% increase in personal income for December, with its different method of calculation.  Personal spending, however, actually fell in December… to the tune of 0.3%.

ISM Indices ChartPH 2815-ism

Last week was also a big one for January’s ISM data. The overall ISM Index fell from 55.1 to 53.5 in January, while the ISM Services Index inched higher from 56.5 to 56.7. Any reading above 50 is deemed a positive one, though investors would clearly prefer to see each index moving decidedly upward.

Source:  Thomson Reuters Eikon

Economic Calendar
PH 2815-econ-data
Source:  Briefing.com


The coming week is clearly going to be a lighter one in terms of economic data.  The only item of real interest, in fact, is going to be Thursday’s retail sales figures for January.  Obviously they’re going to be weaker than December’s totals, but on an adjusted basis they’re expected to grow 0.5% without automobiles thrown into the mix.  Factoring automobiles in, though, brings the outlook down to a 0.2% decline.





Stock Market Index Analysis

To say the market was sending mixed messages right now would be an understatement.  The bulls’ argument is about as good as the bears’ argument, and we have to respect both possibilities until one side of the table or the other takes clear, decisive control of the situation…. something we haven’t seen happen since October.

Just for the sake of clarity, we’ll look at each of the two points of view separately, using the S&P 500 (SPX) (SPY) as the guinea pig.

The bullish case:  Above all else, the fact that the S&P 500 managed to gain 3.0% last week – despite Friday’s 0.34% slide – verifies the current momentum is bullish.  If that’s not convincing enough, however, we also got a bullish MACD cross last week.  The index is also above all of its key moving average lines, and the CBOE Volatility Index (VIX) (VXX) is trending lower.

S&P 500 & VIX – Daily ChartPH 2815-sp500-daily

Charts created with TradeStation

The bearish case: Friday’s peak and subsequent rollover is something we’ve seen too many times lately to assume the outcome will be different this time.  In fact, the pullback materialized at a proven resistance level… 2065. If you look closely, you can also see all it took to get the pullback started on Friday was a brush of the upper 20-day Bollinger band at 2073.  The VIX is also at an intermediate-term (albeit rising) floor.

While the conventional wisdom would suggest yet-another dip back to the floor around 1990 is inevitable, there’s not enough evidence to say it’s going to happen for sure. It’s likely, but hardly a guarantee.  If the S&P 500 breaks under the 20-day moving average line (blue) at 2031, that would be a great bearish sign – at least enough to force a revisit to the support at 1990.  But, as close as we still are to the ceiling around at 2064, it wouldn’t take much of a surge to push the index to higher highs.  Another move (and especially a close) above 2065 could be bullishly catalytic given we’ve now seen two months’ worth of consolidation.

The confirmation of any budding uptrend will come in the form of an upswing of the PercentR line following a dip of that indicator that occurs above the 80 level.

Zooming out to a weekly chart of the S&P 500 doesn’t tell us anything more, but it does offer us a little more perspective on how and why things are shaping up the way they are.  Specifically, the VIX’s ceiling at 21.6 did its job and pushed the volatility index back.  Simultaneously, though not perfectly, the S&P 500’s 26-week moving average did end up serving as a floor – again – after threatening to break under it two weeks ago.

S&P 500 & VIX – Weekly Chart
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The other indices like the NASDAQ Composite (COMP) (QQQ) and the Russell 2000 (RUT) (IWM) are in the same situation…. within reach of a move to new, and possibility catalytic, highs above recent resistance levels. Looking at them individually would add little to the discussion right now.

Bottom line?  This week is going to be real interesting, even if not bullish.  We’ll have to assume the market is still in the trading range it’s been in for nearly two months now.  Just bear in mind that it would only take one or two good days to snap stocks out of their recent rut.

Crude Oil Chipping Away at a Rebound

While it may be a little premature to say crude oil (USO) is rebounding, it’s not too soon to start entertaining the possibility that we’re on that path.

One our daily chart of crude oil prices below, the commodity crossed back above its 20-day moving average line (blue) last week.  And, despite the peelback from the 50-day moving average line, the 20-day line seems to have been support on Thursday, and we’ve seen a great deal of bullish volume over the past week… one of the key ingredients to any long-lasting rebound.

Crude Oil Futures – Daily Chart
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A move above the 50-day moving average line (red) at 54.53 per barrel could be a huge clue that the undertow for oil has changed direction.

Trade Well, Price Headley  BigTrends.com