All things considered, the market held up quite well last week in spite of plenty of reason not to. The S&P 500 (SPX) (SPY) ended the shortened trading week with a very slight gain, and also ended the week with the bulls testing the waters of higher highs after defining a near-term floor. And yet, its failure to actually make forward progress, even though it tried to do so, is concerning in itself.

We'll take a closer look at the trading range that developed last week and what it will take to break out of it below. The technical ceiling is thick though. First, let's run down last week's and this week's key economic numbers.

Economic Data

We were absolutely inundated with economic news last week, but there's little doubt as to the highlight - Friday's employment report for May. It was lackluster to say the least. The 38,000 new jobs created last month was a multi-year low, putting an exclamation point on a rather dramatic slowdown we've seen in terms of job creation since late last year. Most likely there was some sort of skew to it, at least partially stemming from a strike by Verizon (VZ) workers. But, the Verizon strike doesn't explain this severe degree of contraction.

Yes, the unemployment rate slipped to 4.7%, but this is one of those cases where it's necessary to understand how that figure is calculated. The total number of people who are no longer counted in the workforce -- by virtue of giving up on the job hunt -- fell significantly, while the total number of people with jobs fell, though it fell less dramatically. Make no mistake though. Although the employment numbers from last month stave off a rate hike, there's more downside in the reason than upside in the effect.

Payroll Growth, Unemployment Rate Chart


Source: Thomson Reuters

It was also a big week for ISM data; we got services and manufacturing index updates. The manufacturing index came on at 51.3, up from a prior reading of 50.8, and better than the expected 50.9. As for services, it slumped from 55.7 to 52.9, missing analyst expectations of 55.4.

For a change, the manufacturing index is showing persistent signs of life, while the services index continues to deteriorate. Both need to remain above 50 - and ideally, rising - for the economy to reach full speed. The economy can survive with this basic level of stability though.

ISM Index Chart


Source: Thomson Reuters

It wasn't all tepid news last week though. Investors were pleasantly surprised to learn the Conference Board's consumer confidence score ticked from 89.0 to a multi-month high of 94.7. The Michigan Sentiment Index didn't follow suit, and were it not for last month's Conference Board reading, both sentiment measures would be in alarming downtrends. Still, the data as a whole merits more caution than pessimism.

Consumer Sentiment Chart


Source: Thomson Reuters

Everything else is on the following grid:

Economic Calendar



There's little in the lineup for this week, and none of it is worth previewing. And, with Q1 earnings season being all but over, everything that happens with stocks this week is going to be value driven rather than news driven. We're about to see the market's true colors.

Stock Market Index Analysis

The bears had every opportunity to knock the market over last week. They just couldn't do it. If nothing else, we have to respect stocks' resilience. And yet, the market is no less vulnerable and no less overvalued than it was a week ago.

The good news: For the S&P 500, a floor has developed at 2084. This used to be a minor technical ceiling, making it a slightly more meaningful support level now. Though against the odds last week, the fact that the bulls consistently used that level as a rebound point means more bulls are apt to draw a line in the sand there.

The bad news: Though the April peak around 2110 wasn't quite tested, but it's pretty clear the bulls are hesitant to even test resistance around that mark. You'll also see the CBOE Volatility Index (VIX) (VXX) is back at a very well-established floor around 13.1.

S&P 500 & VIX Daily Chart


Chart created with TradeStation

For better or worse, the litmus test is upon us. If the Percent R line can move in an upward direction again (before breaking back under the 80 threshold) on the same day the S&P 500 makes a higher high, that's a strong sign of a bullish undertow... despite the market's current overbought and overvalued condition.

With all of that being said, it's the NASDAQ Composite (COMP) that may be offering us more and better clues than the S&P 500 could right now.

Unlike the S&P 500, the NASDAQ perfectly tested -- and has so far failed -- April's peak at 4969. If that ceiling is cleared in the foreseeable future, that could spark a trade-worthy rally. Once again though, with the Nasdaq Volatility Index (VXN) being as low as it is now, it's difficult to imagine the composite have a great deal of room to run higher.

NASDAQ Composite & VXN Daily Chart


Chart created with TradeStation

Zooming out to a weekly chart of the S&P 500, we can get a much better perspective on how and why the bigger rally is stalling here. Not only is there a well-established ceiling at 2111 right now, there's also a falling resistance line (dashed) that extends back to early last year to contend with. It's on this chart we can also see the VIX has pretty much reached its lower limit.

S&P 500 & VIX Weekly Chart


Chart created with TradeStation

Above 2111, there's nothing to hold the S&P 500 back. And, we have to respect the fact that even if the market pulls back, there's plenty of support that could bring a quick end to the bleeding. The NASDAQ, for instance, has a ton of support developing at 4830. The Dow Jones Industrial Average (INDU) (DIA) also has a ton of technical support developing below its current level.

The problem is, the S&P 500's trailing P/E currently stands at 21.25, and the forward-looking P/E is 17.2. That big improvement assumes crude oil prices (USP_ will continue to rebound, and the trailing P/E is somewhere skewed higher by the energy sector's (XLE) losses. Even so, that doesn't leave a lot of room for more gains. Should the S&P 500 even manage to reach that upper Bollinger band (on the weekly chart) at 2156 -- a 2.7% gain -- the forward-looking P/E would be back up to 17.7... much higher than the normal forward-looking P/E ratio.

In other words, at some point in time companies are going to have to start earning more. Otherwise, the risk/likelihood of setbacks remains too great to dig on very deep. It's certainly great for short-term trading though.

Fed Funds Rate Hike Kicked Down the Road

Already on thin ice, the odds of a June and/or July interest rate hike were pretty much obliterated last week when we saw last month's dismal job-growth numbers. To quantify the subjective idea, our chart of the various odds of different Fed Funds Rates at different points in the future has been updated. Take a look.

Fed Funds Rate Change Outlook Chart