The bulls tried and tried, but it was a lost cause last week. Stocks never recovered from last Tuesday's stumble, and the bulls squandered their best chance to get back on a bullish track on Friday. All the major indices closed below key technical levels on Friday when the bullish effort that day petered out.

Near-term the market still isn't completely past the point of no return, but it's close, and it's pointed in that direction.  However, while the tide may be pointed in a bearish direction, as we've learned several times this year, we can assume nothing. There's still a chance stocks could come out of this funk mostly unscathed.

We'll explore the standoff below. First, let's run down last week's and this week's major economic news. There's quite a bit for both weeks that has and will move the market.

Economic Data

There's little doubt as to last week's economic highlight - the release of the minutes from the most recent FOMC meeting. Unfortunately, it didn't tell us much more than we already knew about the health of the economy. That is, we're not quite in need of a rate hike yet, but we may need one soon... the same song and dance we've heard for a while now.

The other biggie last week was September's retail sales. They were strong, reversal Augusts' dip. Retail spending grew 0.6% overall, and were up 0.5% when removing automobiles from the equation. Both were in line with expectations. More important, last month's year-over-year comparisons have been and continue to be positive, rolling in between 2% and 3% growth (depending on which segment of retail sales you're looking at).

Retail Sales Year-Over-Year Growth Chart


Source: Thomson Reuters

Finally, though it won't be until this week when we get the bulk of the most recent round of inflation data, we got a glimpse of it last week with the producer price inflation report. It was up, with or without food and energy.... up 0.3% overall, and up 0.2% on a core basis. Moreover, on an annualized basis, the benefit of cheap oil has finally run its course. Year-over-year inflation (a more meaningful figure) for producers even factoring in food and energy costs swing to a positive pace of 0.7% last month... the strongest pace since late 2014.

Inflation (Annualized) Chart


Source: Thomson Reuters

September's consumer inflation data will be out this week. It too has been moving higher for a while now. Indeed, it's starting to reach levels that will force the Fed's hand.

Everything else is on following the grid:

Economic Calendar



Aside from September's inflation report, we're also going to get last month's capacity utilization and industrial productivity this week. It will be out on Monday. Capacity utilization is on the mend, and productivity is holding steady. We can't afford to lose ground from either here.

Capacity Utilization and Industrial Productivity Chart


Source: Thomson Reuters

Finally, be prepared for September's housing starts and building permits on Wednesday. Things here have been steady, but a reheated uptrend would do us a lot of good. Any further weakening on these fronts and we'd start trending in the wrong direction.

Housing Starts and Building Permits Chart


Source: Thomson Reuters

Stock Market Index Analysis

The market isn't past the point of no return yet short-term, but it's getting awfully close.... and remains pointed in that direction.

On Thursday, just when it looked like stocks were finally going to succumb to profit-taking, the bulls stepped in at the last minute to escape an implosion. Unfortunately, they didn't do anything bullishly convincing on Friday. A decent buying effort quickly faded, turning into a breakeven (or worse), and ending the week pointed downward.

Yet, the S&P 500 (SPX) (SPY) is still above a major support level at 2119. That's where the index formed a floor back in early September. The S&P 500 briefly traded under that line on Thursday, but as was noted, the bulls pushed back. They just couldn't muster any follow-through on Friday. The index closed back under the 100-day moving average line on Friday, just 14 points away from that pivotal floor.

S&P 500 & VIX Daily Chart


Chart created with TradeStation

And even without that technical damage, the picture is anything but compelling. The Percent R line is within easy reach of the bearish 20 threshold, and the MACD lines are decidedly bearish.... by virtue of their negative crossover as well as the fact that the divergence took shape while both MACD lines were below zero (suggesting the undertow was bearish to begin with). Even the volume behind Friday's busted bounce effort was feeble.

The bearish clincher? The Percent R line must move under - and stay under - the 20 level while the S&P 500 itself breaks under the 2119 line.

Zooming out to a weekly chart of the S&P 500 we can see what's become an alarming string of lower highs, and broadly speaking, lower lows. It's also clear in this timeframe that the CBOE Volatility Index (VIX) (VXX) has plenty of room to rise before reaching a more absolute peak, and the S&P 500 itself has at least a little room to pull back before finding a major floor. Assuming the 2119 floor is breached, the 200-day moving average line (green) at 2072 becomes the next most likely rebound/ potential support point.

S&P 500 & VIX Weekly Chart


Chart created with TradeStation

The daily chart of the NASDAQ Composite (COMP) more or less looks the same. That is, the index is putting some major pressure on the lower Bollinger band, and if it breaks, there's plenty of room for a decent-sized selloff. Conversely, there's plenty of room for the Nasdaq Volatility Index (VXN) to edge higher.

NASDAQ Composite & VXN Daily Chart


Chart created with TradeStation

While the tide may be pointed in a bearish direction, as we've learned several times this year, we can assume nothing. There's still a chance stocks could come out of this funk mostly unscathed. The S&P 500 would need to fight its way all the way back above the 50-day moving average line at 2164 to really make that bullish case a convincing one, but all possibilities remain in the table. Indeed, there's more potential bullishness that most might appreciate.

We're now entering the most bullish time of the year. The end of the September lull (which we really didn't extensively get this year) is usually sometime in the second week of October. This sets up the usual year-end rally. This year has been a tad unusual, however, so it remains to be seen when or even if we'll move back to the norm. Specifically, the S&P 500 is ahead of its normal/average year-to-date results this year.

S&P 500 Year-To-Date Return Vs. Typical To-Date Performance


Chart created with TradeStation

While the market is ahead of the norm so far for 2016, clearly we're at a time of year when things heat up. It may be a more a question of degrees rather than direction.