Believe it or not, the S&P 500 (SPX) (SPY) lost ground last week. It was a "just barely" situation, and the Russell 2000 (RUT) (IWM) as well as the NASDAQ Composite (COMP) (QQQ) both ended the week higher even with Friday's pullbacks. The across-the-board weakness to close out the week, however, is something to think about even if it's not yet something to worry about.

The odds are weighed below. Let's first dissect last week's economic numbers and preview what's coming up this week.

Economic Data

It was a busy week last week from start to finish on terms of economic news. We'll stick with the highlights and keep the discussion to a minimum. Charts do most of the talking anyway. In no particular order...

Odds are good you've heard the United States is now experiencing deflation; the annualized inflation rate now stands at -0.09%. The pullback in oil prices, and therefore gasoline prices is the culprit, but even on a core basis (not counting food and energy) inflation is quite low.

Though consumers aren't feeling quite as good as they did a month ago, in the grand scheme of things they're still feeling optimistic. Though both the Michigan Sentiment Index and the Conference Board's consumer confidence levels pulled back a little in February, both are still near long-term highs created by a firm uptrend.

Home sales were off slightly in January. Sales of existing homes slipped from a December pace of 5.07 million to 4.82 million, below expectations of 4.95 million. New home sales of an annualized pace of 481,000 was down a bit from December's 482,000 pace, but better than the expected 470,000 units.

Finally, though home sales were a little anemic, prices at which those homes are being sold continue to rise. Both the Case-Shiller 20-city Index and the FHFA Housing Price Index (seasonally adjusted in both cases) were up in December, extending already well-established uptrends.

Home Price Trends Chart 3115-home-prices Source: Thomson Reuters Eikon

Economic Calendar 3115-econ-data Source:

Though this week is another full week in terms of economic news, there's little doubt as to the highlight - Friday's employment news. Broadly speaking, economists expect February's numbers to look very much like January's. across the board.

Stock Market Index Analysis

In the grand scheme of things we can't be too surprised the market stumbled a little on Friday. Stocks have rallied sharply since the very first day of February, with the S&P 500 up as much as 6.2% last month at one point by the middle of last week before closing February out with a 5.4% gain. It deserves a breather.

The bad news is, because the February runup was so hot, there's still room for the market to keep falling. The good about the bad news is, the broad uptrend is still intact, and even more selling from here won't necessarily snap stocks out of their bullish trend.

The daily chart of the S&P 500 tells much of the story. The breakout above 2064 from three weeks ago got good traction for two weeks, but last week the weight of those gains began to drag the market down. It's still a little overbought in the very short run, but it's not like we have reason to worry yet. The S&P 500 could fall all the way back to the 20-day moving average line (blue, currently at 2077.8) and still be in an uptrend. In fact, perhaps the more meaningful floor at this point is 2064... where the prior ceiling was, and where the 50-day moving average line (purple) will be soon.

S&P 500 & VIX - Daily Chart 3115-sp500-daily Chart created with TradeStation

You'll notice that we're nearing a bearish divergence from the MACD lines as well as on the verge of a Percent R (using the BigTrends smoothed method on Williams % R) move back under the key 80 level. Both signal near-term weakness, but neither suggests bigger-picture problems yet -- the Percent R reading, in fact, may well be a bullish re-test soon. The MACD lines need to fall below zero and the %R line needs to move below 20 to confirm the bigger-picture undertow has turned bearish. If the modest rollover from late last week goes anywhere, we have no reason yet to think it's the beginning of anything more than a blip within a longer-term rally.

Although the daily chart has a whole "zone" of potential support lines all between 2020 and 2065, none of them may be as meaningful or as proven as the weekly chart's 26-week moving average line currently at 2027. It's pretty easy to see this line has played the role of support in recent months, and is apt to do so again. We may want to be tolerant of a pullback to that line before panicking.

The CBOE Volatility Index (VIX) (VXX) has broken below the round 14 level, which is a sign that option traders in general aren't too concerned currently as a whole -- this is line with the market showing strength, and we would tend to consider this a bullish backdrop for stocks.

S&P 500 & VIX - Weekly Chart 3115-sp500-weekly Chart created with TradeStation

Should the 26-week moving average line fail to act as a floor, the next reversal point is likely to be the lower 26-week Bollinger band currently at 1916. Detailing that possibility isn't merited just yet though.

Valuation Challenges Ahead

Though it may not have much effect on stocks in the near-term, over the long haul, stocks tend to reflect their fundamental values. And, as it turns out, valuations are starting to approach frothy levels thanks to February's big rally.

With Q4's results all but complete, we know the S&P 500 "earned" $112.82 per share last year, and is projected to earn $118.32 per share this year. That translates into a trailing P/E of 18.65 and a forward-looking P/E of 17.78. Both are well above historical norms.  Something to keep in mind if future earnings don't adjust valuation levels to something close to long-term averages. Trade Well, Price Headley