Despite the solid start to the trading week on Monday of last week, Tuesday's and Wednesday's dips cast a shadow of doubt on stocks. Yes, the S&P 500 (SPX) (SPY) ended the holiday-shortened week with a small gain. But, once again the bulls have a big hurdle right in front of them they'll need to clear first before we can seriously entertain bullish ideas.
We'll analyze the current shape of things below, after painting the bigger picture with some broad economic data brushstrokes.
Last week was plenty busy in terms of economic news, but there's little doubt as the highlight - or maybe we should say lowlight - of last week's economic data. Friday's unemployment report was a rather big disappointment, perhaps leaving investors glad the U.S. stock market was closed an unable to dish out a knee-jerk response.
The good news is, the unemployment rate held steady at 5.5%. The bad news is, the Dept. of Labor said the nation only added 126,000 new jobs last month. Economists were looking for 250,000 new payrolls.
In retrospect, Wednesday's weak payroll growth figure from ADP for March was an omen for the official figure from the Department of Labor. Even more alarming is that we've seen decided downtrends - albeit mild downtrends - on both fronts since November's peak. The unemployment rate has continued to slide lower despite the tapering of the job-growth numbers, but we may now be at the point where something's got to give.
ISM Index Chart
Job numbers weren't the only economic data released last week. The ISM Index for March was also posted. The score of 51.5 was technically bullish, being above 50.0. But, it's been in a bit of a slump over the past few months.
PMI Index Chart
Ditto for the related PMI Index in terms of a slump over the past few months, though the PMI score is even more alarming in that it just logged a second monthly score below 50 in March.
Soure: Thomson Reuters Eikon
Finally, despite weakness on other fronts, consumers continue to gain confidence. The Conference Board's consumer confidence score bounced back in March from 98.8 t0 101.3, nearing the multi-year record of 103.8 hit in January.
Here's the rest of last week's data, and the numbers expected from this week's economic reports.
This week isn't going to be nearly as busy, though perhaps just as big. The minutes from the most recent FOMC meeting will be released on Wednesday, offering us some renewed insight on the Federal Reserve's latest take on the interest rate outlook.
Stock Market Index Analysis
The bulls may have technically won the week, but the pressure is on the bulls to convince investors that the undertow is still a bullish one. Not only did the S&P 500 close below its 20-day (blue) and 50-day (purple) moving average line, but the 20-day line crossed under the 50-day line as of Friday. It's a confirmation that the short-term trend is starting to become an intermediate-term trend. You'll also both MACD lines are not only sloped downward, but are also below the zero level.
S&P 500 & VIX - Daily Chart
Chart created with TradeStation
On the flipside, it's not like the market's fallen off the edge just yet. There's still a big floor at 2035, where the index bottomed in early March, and where the lower 20-day Bollinger band is right now. Until that level is snapped, there's still reason for hope.
NASDAQ Composite & VXN - Daily Chart
The daily chart of the NASDAQ Composite (COMP) (QQQ) tells the same basic story. That is, the bulls are on the defensive but they've got some tools to work with. Namely, the Nasdaq seems to be finding a floor at the 50-day moving average line (purple) at 4871. It could still easily use the 50-day line as a pushoff point.
S&P 500 & VIX - Weekly Chart
Something we've seen on both daily charts that bodes supportive of the bulls is the fact that the S&P 500 Volatility Index (VIX) (VXX) and the NASDAQ Composite's Volatility Index (VXN) both seem to held back by a ceiling, which in turn keeps the bulls within reach of a rebound without going through a complete capitulatory move first. For the VIX the ceiling is at 17.3, and for the VXN the resistance level is 18.6. Those ceilings will need to break in conjunction with technical breakdowns from the index's key support levels to really confirm a breakdown is underway.
There's even more reason for hope when we zoom out to a weekly chart of the S&P 500. It's in this timeframe we can see the S&P 500's 26-week moving average line at 2043 - which has been clear support for well over a year now - is still holding as support.
Putting it all together, we can firmly conclude the market is on the fence at this time... but leaning bearishly.
In simplest terms, with such a distinct lack of progress over the course of the past several weeks, the bull need to prove they're worth owning at this point. They'll need to clear some major technical hurdles to do so. For the S&P 500, that first hurdle is the convergence of the 20-day and 50-day moving average lines at 2073, though only a move beyond 2118 would really convince traders on the sidelines that stocks were worth the risk of being in them here.
Conversely, while the overall momentum is slightly bearish right now, there's room for all the indices to drift even a little lower before moving past the tipping point. For the S&P 500, that make-or-break support level is still 2039.
The good news is, the range stocks are currently trapped in is a rather narrow one, which means we could snap out of it in just a matter of days. It may well happen this week. Trade Well, Price Headley BigTrends.com