Despite Friday's lull, the market took a pretty big bullish step last week, following through on the reversal hints it was dropping before the three-day weekend. It's still not over its biggest hurdles, but at least it's not knocking on the door of a rather serious breakdown. On the other hand, the hurdles ahead are very big, and backed by stress-inducing fundamentals.

We'll take a technical and fundamental look below. Let's first paint some broad brush strokes with last week's economic numbers and a preview of what's in the lineup for this week.

Economic Data

It wasn't a terribly busy week last week, in terms of economic news. But, we did get a big dose of real estate and construction data.... not that it was terribly encouraging.

Housing starts ramped up from a pace of 1.043 million to 1.089 million in December, though permits fell from a pace of 1.052 million to 1.032 million. Both are ok, even if not red hot.

Housing Starts, Building Permits Chart

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Source: Thomson Reuters Eikon

Sales and pricing of homes also continues to edge slightly higher. Existing home sales reached an annual pace of 5.04 million last month, up from November's 4.92 million. Meanwhile, the FHFA Housing Price Index grew 0.8% for November.

FHFA Home Price Index & Existing Home Sales Chart

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Source:  Thomson Reuters Eikon









Economic Calendar

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This week is obviously going to be busier, for several different reasons.

We'll get the party started on Tuesday with December's durable orders data; the pros are looking for a little bit of an improvement after November's slowdown.  We'll also get another key round of real estate data on Tuesday though... November's Case-Shiller Index (of home prices) and December's new-home sales pace. Both remain in uptrends, though not super-strong ones

On Wednesday we'll hear from the Federal Reserve regarding any potential changes in interest rates. Though it's unlikely any will be altered, the language that accompanies the decision has become as critical and market-moving as the decisions have been.

We'll get Q4's first guess (of three) regarding the nation's GDP growth rate. Economists currently believe we'll see a pace of 3.2%, following Q3's growth rate of 5.0%.

Michigan Sentiment Index & Conference Board Consumer Confidence Chart

Source:  Thomson Reuters Eikon

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Also on Friday we'll hear the third and final reading for January's Michigan Sentiment Index, though no changes are expected from the previous January reading of 98.2... which happens to be an 11-year high. That uptrend basically jibes with the uptrend from the Conference Board's consumer confidence score, which we'll actually see updated for January on Tuesday.

Stock Market Index Analysis

We've got plenty to talk about this week, but let's just preface everything by first acknowledging the market has been, and still is, stuck in an intermediate-term trading range. We have to assume stocks are going to remain in that go-nowhere mode until we have clear evidence they've broken free. With that being said....

In the very near-term, the bulls technically have the edge at this time.

The chart of the S&P 500 (SPX) (SPY) below is what it is. The index did end up using its lower 20-day Bollinger band (blue) and the lower 50-day Bollinger band (gray) as a springboard two weeks ago, ultimately crossing back above its key shorter-term moving averages on Thursday. Even with Friday's mild dip the S&P 500 closed above the important 2049 area, where those two short-term moving average lines had converged.

S&P 500 & VIX - Daily Chart

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Charts created with TradeStation

On the other hand, it's not as if we haven't seen these types of rally efforts fall apart in recent weeks. Since November we've made two major tops and what could be considered a minor top in early January, leading us to a net result of no real movement since mid-November. Why should this rally end any differently than the last handful have?

That's not necessarily a pessimistic point of view - it's a true rhetorical question. The answer is, a move above all the potential ceilings standing in the way now, the uppermost of which is at 2093. That's a lot of resistance though, with more on the way now that the upper 20-day and 50-day Bollinger bands are moving lower.

The CBOE Volatility Index (VIX) (VXX) closed back down to 16.66, as some of the recent worry among option traders was alleviated after the ECB announcements last week.

The NASDAQ Composite (COMP) (QQQ) chart doesn't look much different, meaning the bulls are in charge right now, but until the composite clears a big ceiling at 4813, it's not a rally we can trust well enough to buy into in a big way.

NASDAQ Composite & VXN - Daily Chart

PH 12515-nasdaq-dailyThe good news is, although the indices aren't yet over some big hurdles, they're also not yet under some major floors. For the S&P 500, that support is all around 1990 with a last-chance floor at 1972. For the NASDAQ, the floor's around 4570 with a last-chance support level at 4551. As long as the indices remain above those levels they're still in the hunt for a breakout. If either or both indices should move under these key support levels though, after more than two months of no net movement, even the tiniest breakdown could prompt some significant selling from investors who are growing increasingly concerned that the market has stalled.

With all of that being said, the most interesting part of this story may not be what you can glean from either daily chart. Rather, it's a weekly chart of the NASDAQ Composite that best explains why the rebound happened when and where it did.

Take a look. Now we can see there's a key rising support line for the composite, and we can also see how the Nasdaq Volatility Index (VXN) peeled back from a horizontal ceiling at 23.60 after touching it three weeks ago.

NASDAQ Composite & VXN - Weekly Chart

PH 12515-nasdaq-weeklyAlthough it's only anecdotal to us at this point, it would be wise to keep this chart's message in mind for the foreseeable future... if only to spot the point where a pullback has started to get much more serious (by falling under the rising floor). The VXN should follow suit with steady move above 23.6.


Q4 Earnings Report Card

Although less than 20% of the S&P 500's companies have reported their fourth quarter earnings results, it's not too early to start examining the numbers and thinking about what they mean. No need to pontificate; the table says everything that needs to be said. Just bear in mind that 2014's earnings growth figures are partially based on to-date results, and partially based on estimates for companies that have yet to report Q4's numbers. .

Sector Earnings Table

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Trade Well,  PH