Well that was the best week since early July, with some... well, with some decent economic news to support it. Too bad stocks got a little ahead of themselves.
That's not to say a sharp pullback is imminent. That's not even to say any pullback is imminent, as we know euphoria can linger. Just a caution. We'll take a look at the good, bad, and risky below.
Economic Calendar
Last week was indeed the whirlwind week we warned of. And, even the mediocre news was interpreted as bullish. The market soared accordingly.
Income and spending were both up, by 0.2% and 0.4%, respectively. And, consumer confidence came in higher as well as much better than expected (to 53.5). Factory orders were up a tad as well, by 0.1%.
On the housing front, the improvement was solid. The Case-Shiller index showed a 4.23% increase in home prices, and pending home sales popped by 5.2%.
Initial claims fell a tad (-6K) to 472K, as did continuing claims, to 4456K. Private nonfarm payrolls grew by a better-than-expected 67K. Hourly earnings also topped expectations with a 0.3% increase. The unemployment rate inched higher from 9.5% to 9.6%, though in some regards that's a healthy sign of an increase in job-getting optimism. Economic Calendar
The coming week will be mush less eventful. August's consumer credit levels will be unveiled on Wednesday (-$5.5B expected). New and ongoing claims will be released on Thursday; look for little change. Wholesale inventories should show a 0.5% increase on Friday.
Overall, as investors start to get comfortable with the fact that the incredible YOY growth was a thing of the past - and that the current YOY numbers aren't "slam dunk" comparisons - expectations have been worn down to something more reasonable. And, now that it's becoming clear that the slow-down doesn't equate to a contraction, the bulls have a fighting chance again. S&P 500
The good news is, the S&P 500 gained 3.75% last week... the best week since the first full week of July that kick-started a significant runup. The bad news is, with Friday's gap and Wednesday's monster move, the SPX is well over-extended. That's not the worst of it though.
As you can see on the chart below, volume was fading the whole time the rally was moving forward. Moreover, the 100-day moving average line (gray) - which is a proven resistance level - also halted the advance on Friday. Both point to a struggling market and unprepared bulls at this juncture, unless the bulls can quickly regroup around current levels.
That being said, as we all know the market can stay irrational longer than you can stay solvent, if you're counting on a pullback. Don't rule out that move to the horizontal ceiling (dashed) at 1130, or even the upper Bollinger band (blue) at 1137 before the bulls finally take a breather. That's not a forecast (now's a dangerous time to be making blind bets).... just a possibility.
The more likely outcome here is a retest of the 50/20-day moving average lines (purple and blue, respectively) around 1080 before the bulls get rolling again. That would bleed off a great deal of the overbought pressure weighing in on stocks right now.
Either way, the near-term scenario suggests more upside than downside. The long-term scenario still requires a huge hurdle around 1135 be cleared before the buy-and-holders start to dig in again. And, oddly, it's not so much the chart that looks potentially problematic as it is the calendar.
We've mentioned this before, but it bears repeating now; we're now in a statistically weak month... weakness that should linger through mid-October, if the 'norm' plays out.
Get the message here? Stocks are largely in no-man's land right now. We know where the boundaries (and breakout signals) are, but the current momentum/direction is a little shaky. Play it close and tight for now.
S&P 500
NASDAQ Composite
Not a lot to add for the NASDAQ that we didn't discuss for the S&P 500's chart. It's on this chart, however, that we can see how the market still has some upside room to move despite a massive bullish burst last week. The NASDAQ won't bump into 100/200-day moving average line combo (gray and green, respectively) until it reaches 2270 ...36 points above where we are now. The horizontal resistance line (dashed) and the upper Bollinger band are both above that level.
As with the S&P 500, any long-term uptrend will ultimately depend on what happens there; any movement between here and there is just volatility.
One extra thing the NASDAQ Composite does have going for it is that the VXN reached new multi-month lows on Friday, by moving under the floor (dashed) at 22.90 and closing at 21.95. [The S&P 500's Volatility Index hasn't quite pushed under its recent floor.]
Like the S&P 500, the NASDAQ is walking a thin line, and could easily be swayed either direction with even the smallest of catalysts. Let's let the dust settle here first. The NASDAQ probably won't be major-trade-worthy again until it's above 2270 or below the 50-day average at 2204,
NASDAQ Composite
Sector Performance
Financial stocks blazed the trail last week, advancing an average of 5.7%. What's interesting about the sector's move, however, is how well distributed the rally was among all the industries. Normally there's a standout that ends up scoring near the top of the ranks of the industry contest (see below), but in this case none of the top five industries were a financial grouping. It's a sign of strong breadth from the sector's gains.
At the bottom of the barrel were telecom and utilities.... two groups that had been at the top of the heap for the last month or so as defensive-minded investors fled to safer havens. Though the two started to lag again last week, don't give up on either yet... each is still a serious laggard for the last 18 months, meaning they each have plenty of ground to reclaim as the sector rotation effect continues to play out. Sector Ranking
Industry Performance
With the exception of motorcycle manufacturers, there's probably something more to the leading industries from last week [sorry, no long-term data for the paper products index]. Each has been a laggard for the better part of the year, but each is also showing an itch to continue accelerating now.
As for the losing side, seeing multiple healthcare industries at the bottom of the rankings doesn't bode well for either of those arenas, nor the sector at large.
Regarding packages foods and distillers, bear in mind that staples fell out of favor last week as visions of bullishness and rapid growth once again danced in investors' heads. It's the kind of thing that puts staples and consumables on the backburner. Don't read too much into the lagging just yet.
Industry Ranking
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