Weekly Market Outlook – The Bullish Case Just Got Tougher to Make

Despite the rough start to the week, sparked by concerns over deteriorating trade relations, the bulls made a commendable effort trying to get the market back on track. It wasn’t meant to be, however. Although the buyers chipped away at a couple of key technical ceilings the rest of the week, when it came time to make a commitment on Friday, the bulls couldn’t commit.

There’s still a chance stocks could recover. But, each failure discourages another batch of would-be buyers. We’re also well into the slow – and even bearish – time of year for the market.

We’ll weigh it all below as we always do. But, first, as we also always to, let recap last week’s economic reports and preview what’s in store for this week.

Economic Data Analysis

The week was fairly loaded, though the heavy-hitters weren’t up until Wednesday, beginning with last month’s retail sales.

You’ll recall consumerism has been relatively disappointing since December, but surged in March, hinting that things were back to normal again. They’re not. April’s retail spending was poor again, falling well short of expectations with or without vehicles. Counting auto sales, in fact, retail spending fell last month.

Retail Sales YOY Growth Charts

Source: Thomson Reuters

It’s not been a problem for the economy… just discouraging. Should this trend persist and even turn negative though, that could be a problem. We’re not concerned just yet, however.

We’re also not yet concerned about the unexpected lull in industrial production, and the amount of factory capacity being utilized. Both fell last month, as well as came up short of projections. Another poor month lengthens an already-concerning downtrend.

Industrial Production and Capacity Utilization Charts

Source: Thomson Reuters

Finally, one bright spot – housing starts and building permits were solid again, up, and better than expectations. While not red-hot, a couple of decent months has quelled the brewing pullback that hinted might take shape just a few months back.

Housing Starts and Building Permits Charts

Source: Thomson Reuters

Everything else is on the grid.

Economic Calendar

Source: Briefing.com

This week is going to be a slow one in terms of economic news. But, it’s going to another big one for real estate. Rounding out what we’ve already learned will be April’s new-home sales and existing-home sales. After a serious slowdown late last year and early this year, the past couple of months have been strong in terms of purchases. That buying has also suppressed some of the recent increase in inventory levels.

New, Existing Home Sales Charts

Source: Thomson Reuters

Economists are looking growth in sales of existing homes, but a slight decline in sales of new houses.

Stock Market Index Analysis

The market bounced back quite nicely from Monday’s drubbing, but an inability from the bulls to close the deal out late in the week means the market actually lost ground. All told, the S&P 500 fell 0.76% last week, marking the second losing week in a row.

That wasn’t the biggest worry about last week’s action though… if you’re a bull. Rather, what’s most concerning about last week is the way the S&P 500 peeled back once it approached its 20-day moving average line (blue) to end up closing under its 50-day moving average line (purple) on Friday. It’s a clear hint that at least the short-term trend has turned bearish.

S&P 500 Daily Chart, with VIX, Volume

Source: TradeStation

We already knew that though.

While the tide/trend was threatened last week, beginning on Tuesday, the longer the week wore on the more it moves back into the groove is was in beginning in early April. That is, the amount of bearish volume continues to build, while the amount of daily bullish volume continues to sink. This was especially true on Friday, even though the market’s pullback was hardly devastating.

S&P 500 Daily Chart, with Bearish, Bullish Volume Trend

Source: TradeNavigator

An uncomfortable number of red flags? Certainly? But, zooming out to the weekly chart once again puts things in perspective for us. While the 3.2% slide since the highs made three weeks ago wasn’t anything to celebrate, it was also nothing to sweat just yet. We just went through a January-April rally of nearly 25%. Stocks deserved a breather.

There’s something else even more encouraging on the weekly chart. That is, despite the pullback to date, we don’t yet have a bearish MACD crossunder.

S&P 500 Weekly Chart, with Volume

Source: TradeStation

Something else that becomes apparent on the weekly chart that is evident but easy to overlook on the daily chart – the S&P 500 has yet to break below its 100-day moving average line (gray) or its 200-day moving average line (green). The weekly chart of the S&P 500 shows that the latter of those two has been a key support level in recent months.

That puts our biggest line in the sand right now around 2770, where those two lines are about to intersect. It’s possible the S&P 500 could make its way all the way to that mark and still not break the bigger-picture uptrend.

If that doesn’t happen though, look for the weekly chart’s MACD lines to turn fully bearish, and look for the VIX to break back above its recent ceiling near 18.0 (plotted in yellow). For that matter, if the sellers pick up some steam, the VIX could break back above the peak around 24.0 from two weeks ago, inspiring even more selling.

All of these events on their own can trigger more selling, which can trigger more bearish technical cures, which can induce more selling… and so on.

That’s why we don’t want to see any of them take shape. Once we get the first one, the next one is more likely, and the third is even more likely than that. The situation has the potential to set off a chain reaction of events that could take a big bite out of this year’s oversized gains. Again though, the key is the S&P 500’s floor around 2770.

Sure, there’s always a slim chance the market could rekindle itself and give as the unusual summertime rally. The S&P 500 would have to hurdle its 20-day moving average line at 2899.6 to get that started though, and we saw little interest in making that happen last week. Even beyond that, the recent peak around 2953 seems a bit of a stretch as long as there’s the overhang of trade wars and industrial productivity that’s quietly shrinking while nobody’s looking.