As has been the case for a while, the market threw investors another curveball last week. That is, stocks initially acted as if they were finally going to tip over the edge of the cliff, but right before they reached the point of no return they bounced back just enough to offer a glimmer of hope.

As encouraging as Friday's strong bounce was (and the pre-open strength on Tuesday is), the fact of the matter is, we're technically still closer to the aforementioned breakdown than we are to a rebound.  Given the market's recent erratic nature, however, we continue to be open minded to either possible outcome.

We'll slice and dice it below as we always do, right after a closer look at last week's and this week's economic news.

Economic Data

We didn't get a great deal of economic data last week, and very little of what we got was of any real interest. There were a couple of items, however, at least worth mentioning.

One of them was last month's retail sales numbers. They rolled in much better than originally anticipated, with overall retail sales growing 0.2% in January, and with retail sales not counting automobiles advancing 0.1%.  Economists were expecting those numbers to be 0.0% and -0.1%, respectively.  Even more interesting was the fact that December's dire numbers of -0.1% (for both measures) ended up getting revised to 0.2% and 0.1% growth, respectively.

Retail Sales Chart


Source: Thomson Reuters

The upward revision of December's numbers as well as January's beat suggests the economy isn't as close to a recession as some observers have suggested.  On that note...

The other item of interest from last week was December's job openings, or JOLTS.  The reading of 5.607 million was not only above estimates, but it was a near-record reading, implying employers are having a tough time filling positions. That's a definite plus for the job market (although some are arguing employers aren't actually looking to fill the advertised positions).



Source: Thomson Reuters

Whether or not the JOLTS data for any given month is a number we can trust, the overall trend is still indicative in itself. And, right now the trend still says the jobs market is moving in favor of economic growth.

All the other data is on the following grid:

Economic Calendar



This week is going to be a little busier, but a whole lot more telling.

It's going to be a particularly busy week on the real estate front, with housing starts and building permits due on Wednesday.  Analysts are looking for January's numbers to roll in right around December's levels. We'll also get February's NAHB Housing Market Index on Tuesday, rounding out the real estate picture.

Housing Starts and Building Permits Chart


Source: Thomson Reuters

Also look for January's industrial production and capacity utilization data on Wednesday. Productivity has held up, but capacity utilization is waning... mostly due to energy's lull. Still, that can create a ripple effect. [More on that below.]

Capacity Utilization and Industrial Productivity Chart


Source: Thomson Reuters

Perhaps most important in the lineup this week is inflation data; we'll get the producer price inflation rate on Wednesday, and the consumer inflation number on Friday. Both have been pretty tepid with or without the benefit/curse of cheap oil. They're going to be big focal points this week simply because the Fed's plans for future rate hikes are - or at least were - predicated on the assumption that we are going to see at least some degree of inflation by now. We're just not seeing much, though it is stabilizing.

Inflation Rate Chart


Source: Thomson Reuters

Stock Market Index Analysis

The bulls managed to finish the week on a high note, but the week on and of itself was not a winning one. The S&P 500 (SPX) (SPY) is still below all of its key technical ceilings, and the bears are still in control for the time being.

As of Friday, the S&P 500 is (1) still below its 20-day moving average line at 1885, (2) still below what used to be a floor at 1876, and (3) still just one bad day away from tipping over the edge of a cliff at 1812... and having that dip confirmed by the MACD and Percent R indicators.

The daily chart below plainly indicates all of this, but...

S&P 500 & VIX Daily Chart


Chart created with TradeStation

... the weekly chart of the S&P 500 puts things in even more perspective. The 1812 level is especially meaningful in the weekly timeframe. The bulls are also enjoying the fact that the shape of last week's bar was a hammer shape, marked by an open and close near the high for the week, with a long-tail in between. It suggests a transition from a net-selling to a net-buying environment. So does the way the CBOE Volatility Index (VIX) (VXX) tried to clear a ceiling at 31.4 - for the past few weeks - and has been unable to.

S&P 500 & VIX Weekly Chart


Chart created with TradeStation

The one curious thing about this chart (and this leans in a bearish direction) is the rising volume. Though we've seen sizeable pullbacks a few times since the bull market began back in 2009, this is the first time we've seen this much of a pullback on this much bearish volume... and it's still rising.

Perhaps it's just a coincidence. In fact, the volume surge in sync with this pullback may be the market's way of making a long-overdue correction, complete with a capitulation (though we've yet to see that decisive volume spike that tends to mark the actual pivot). Yes, that means things could get worse before they get better again. That also means the floor at 1812 may have to break just once to fully spook investors. If 1812 should break, look for such a capitulation. It's unlikely this is the onset of a full-blown bear market.

The alternative is a gradual build on Friday's bounce. That's still a possibility, but as was noted already, there's a lot of resistance around 1885, and even if the S&P 500 manages to clear the ceiling at 1885, there's an even thicker band of resistance between 1966 and 2034.

Q4 Earnings Reports Card

The fourth quarter earnings season isn't over yet, but it is winding down. As of the latest report, 74% of the S&P 500's companies have posted their results for the prior quarter. And, with the exception of the energy sector (XLE), they were pretty good. The index's overall earnings are on pace to roll in at $26.68 per share, down just a bit from the $26.75 per share earned in the same quarter a year earlier. But, taking the energy sector out of the equation, earnings were up about 2% overall. That's not great, but it's not a step backwards either.

S&P 500 Per-Share Earnings Trend and Outlook Chart


Chart created with TradeStation

Regardless of the lull, analysts currently believe we'll see earnings improvement in the latter half of 2016, and continue that growth into 2017. Then again, at one point those some analysts thought we'd see significant growth last quarter. The demise of crude oil (USO) has been taking, and is starting to take a toll on other areas of the market.