From a momentum perspective, the bears were clearly in charge as of the end of last week. On the other hand, the sheer size and scope of the setback opens the door to a possible bounce...  a volatile mode the market has been in for over a year. Only time will really tell if this oddly bearish start to the new trading year was a fluke or the shape of things to come. It's best to prepare for both possibilities.

We'll look at the charts and weigh the odds below.  But first, was quickly review last week's and this week's major economic news, which of course included December's unemployment report.

Economic Data

The economic dance card was pretty full last week, but there's no doubt that Friday's unemployment rate and payroll growth numbers were the highlight of the data. And, they were good. We added a total of 292,000 new jobs, and though that didn't move the unemployment rate from 5.0%, that level of unemployment is still at the strong end of the scale.

Unemployment Rate and Job Growth Chart 011016-unemployment-payroll-growth Source: Thomson Reuters

It's worth adding that the total number of employed persons in the United States right now hit yet another record of 143.24 million last month, and were finally starting to see a renewed upswing in the percentage of the population with jobs.

Civilians/Population Ratio and Employed Total Chart 011016-employment-ratio-employees Source: Thomson Reuters

The only other truly noteworthy piece of economic data posted last week was the pair of ISM indices... services and manufacturing. What's most interesting is the divergence between the services side of the table in the manufacturing side of the table. The growth of Service Industries is clear, leading to a bullish ISM services index score of 55.3 (anything above 50 is considered a sign of growth). Conversely, the manufacturing ISM index rolled in at 48.2, down from November's reading of 48.6, and logging a second straight month under the key 50 level.

ISM Index Chart 011016-ism Source: Thomson Reuters

All the other data is on the following grid:

Economic Calendar 011016-econ-data Source:

The coming week will be quite as busy, although within a couple of significant items in the queue; though all come on Friday.

One of those biggies is December's retail sales report. Economists are calling for 0.1% growth overall, but expecting 0.3% growth when automobiles are taken out of the equation. We need at least a decent number there -- to suggest holiday sales were strong -- if the market is going to have a shot at recovering soon.

Retail Sales Chart 011016-retail-sales Source: Thomson Reuters

The other item worth watching on Friday we'll be the Fed's December look at industrial productivity and capacity utilization.  Both have been lackluster of late and even the smallest backslide now could be interpreted as big trouble.

Capacity Utilization and Industrial Production Chart 011015-cap-util-prod Source: Thomson Reuters

Stock Market Index Analysis

Once the market finally started to break down in the middle of last week, the sellers never looked back. The near-6% pullback carried the S&P 500 (SPX) (SPY) well into new multi-week territory. It's not a confirmed downtrend yet, however, so it's a little too soon to assume the worst. In fact, last week's tumble was so sharp, at least a short-term dead cat bounce could be in the cards.

The chart of the S&P 500 below tells the tale. The near-term support level (dashed) at 1990 finally failed on Wednesday, and past that point the lower 20-day Bollinger band couldn't stave off the bears either.

S&P 500 & VIX Daily Chart 011016-sp500-daily Chart created with TradeStation

This weekly chart of the S&P 500 puts the whole thing in perspective. Though it was a rough week, it's still not as rough as the big setback from early August was. This one was simply crammed into one calendar week.

S&P 500 Weekly Chart 011016-sp500-weekly Chart created with TradeStation

On both charts you'll see the CBOE Volatility Index (VIX) (VXX) has surged well above normal levels. On the weekly chart, though, you can also see neither the VIX's upper band nor the S&P 500's lower band haven't quite been brushed yet, meaning there's still room for more downside from the market. It should also be noted all the Bollinger bands will widen this week, so it's not as if reaching either of the aforementioned bands is guaranteed this week.

As for what's next, before we can assume more selling -- and a bigger correction -- is in the cards, we need to see a confirmation. This will be confirmed by a Percent R line that sloped upward for a brief moment and then moves lower again at the same time the S&P 500 hits a new low, that will serve as the proverbial death blow. Note that this scenario leaves room for the index to briefly move higher again without actually breaking out of this rut. Until the S&P 500 can make its way back above the converged 50-day and 200-day moving average lines currently at 2058, no degree of bullishness can be trusted for long.

Either way, there's a major floor at 1867 that's sure to become a factor again if the S&P 500 is to be pressured any lower. If the index is allowed to break below that support line, it could start a selling avalanche (whether fundamentally justified or not).

The NASDAQ Composite (COMP) looks about the same, though this chart looks a little more prone to bounce sooner. It left behind a bearish gap last week, and the Nasdaq Volatility Index (VXN) is close to its recent peak level.

NASDAQ Composite & VXN Weekly Chart 011016-nasdaq-weekly Chart created with TradeStation

Almost needless to say, this week is going to be a stressful one, even if the market starts to rebound. There's still a lot of technical resistance above.

Overcoming the Bearish Tide

As the saying goes, past performance is no guarantee of future results. On the other hand, a group of stocks that manages to defy the weakness that swept the rest of the market lower -- weakness like last week's is worth noting.

Small Cap Utility Stocks managed to do just that last week. In fact, the S&P 600 Small Cap Utility Index has been surprisingly bullish since late-2014.

S&P 600 Small Cap Utility Index Chart 011016-sp60-small-cap-utilities Chart created with TradeStation

The strength makes a decent amount of sense. Utility stocks (XLU) are defensive in nature anyway, and small caps are generally able to sidestep marketwide weakness. It's just something to keep in mind should the brewing weakness of the large cap indices turn into something bigger-picture. 

Trade Well, Price Headley