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Despite the strong finish last week (Thursday and Friday), it wasn't enough to overcome the weakness early in the week; the S&P 500 Index (SPX) (NYSEARCA:SPY) only closed up 1.89 points last week. Yet, in some ways that seemingly-insignificant move actually did quite a bit for the bulls…like pull the S&P 500 above a critical resistance line that may mean life gets much easier for the option trading bulls.

We'll detail the market's pros and cons in a second [the most detail we've been able to add in a while], right after we review last week's and this week's big economic numbers.

Economic Calendar

Though last week was loaded with data, there's little doubt as to the focal point - jobs, and/or unemployment. While we got surprises that were both better and worse than expected numbers, by and large the numbers we did get were modestly encouraging. Specifically, the nation's unemployment rate fell from 7.9% to 7.7% - the lowest the rate's been in the past four years.

And it wasn't just some arbitrary number suggesting there's progress here. The ADP Employment number said 118K new jobs were added last month, while the government's official number said 147K nonfarm private payrolls (146K overall) were created in November. Neither number was as strong as October's actual jobs growth figure, but both persistent, respectable growth. We still need job-growth in the 400K range for the economy to really hum, but there is net progress being made here.

Other good news includes an unexpected 0.8% improvement in factory orders (versus the expected -0.1% dip) and a 2.9% increase in Q3′s productivity (versus expectations of only a 2.7% increase, and compared to Q2′s 1.9% increase).

On the downside, the Michigan Sentiment Index plunged from 82.4 to the initial reading of 74.5 for November, and the ISM Index fell a tad.

Economic Calendar

The coming week is relatively busy, but there's nothing heavy hitting until Thursday, kicking off with unemployment claims, and then moving into inflation and retail sales.

Look for more sideways movement from the unemployment claims numbers, both initial and continuing. Each has been stuck in the high-300K area for months (going on years). As for retail sales, the pros say they're not looking for any change overall, and a 0.4% increase when including cars. Shoppers have been pretty optimistic this holiday season so far, however, so don't be shocked if last month's retail results end up stronger than expected.

As for Thursday's inflation data, it's just the beginning of the bigger inflation picture… producer price inflation. For better or worse, forecasters say input costs overall slumped 0.5%, but at least managed to rise 0.1% on a core (ex energy and food) basis.

Friday will be a huge day, as we round out the inflation picture, and then add capacity utilization and industrial production to the mix.

On the consumer inflation front, look for a 0.2% dip overall, and a 0.1% uptick in consumer inflation on a core (ex energy and food) basis. As it stands right now, the consumer inflation rate is 2.16%, which is on the low side of 'ideal'.

We've mentioned before that capacity utilization and industrial productivity are key numbers, as they - more than any other data set - show the most correlation with the stock market's long-term trend. Fortunately, both figures are expected to scoot a little higher for November, but each one has been modestly falling for too long now. One month won't make or break a trend, but this month can still be a meaningful one for these two data sets.

S&P 500, with Capacity Utilization and Industrial Production Index

Stock Market

When the S&P 500 finally brushed the 50-day moving average line on Monday, only to abruptly roll over, it would have been easy to come to the conclusion that the market was slipping back into the bearish trend that had been in place since September. But, the bulls stood their ground, pushed back on Wednesday, and kept on going to finish the week strong. In fact, though it was a 'just barely' situation, the S&P 500 managed to close above that 50-day line on Friday. Volume wasn't too bad on the way back up either.

S&P 500 & VIX - Daily
(click to enlarge)

The CBOE Volatility Index (VIX) (NYSEARCA:VXX) also made a fairly strong move lower in the latter half of the week, bolstering the bullish argument.

So is the right play here a long/bullish one? It may be a tad early to make a commitment like that. More than anything, the market is at the mercy of (sadly) things that have very little to do with the market. Namely, the latest tripwire (or prod) is the so-called Fiscal Cliff our senators and congressmen don't seem to mind toying with. Also in play - and a big part of the reason Friday was so strong - is the employment situation, which again has little directly to do with the market, at least in the near-term. Still, assuming nothing else changes, the hurdle of the 50-day line leaves things bullish. Another close above Friday's close of 1418.07 for the S&P 500 would likely inspire the majority of traders, and cement this rally into place.

The weekly chart of the S&P 500 also suggests there's some trade-worthy bullish momentum here, and just as important, tells us there's room to run; there's no real resistance for the index until we get to the 1479 area, where both key upper Bollinger bands are waiting.

It's also on the weekly chart we can tell (for the first time in a long time) that there may be significant bullish volume starting to flow in.

S&P 500 & VIX - Weekly
(click to enlarge)

All that being said, though most signs point to bullishness here for the broad stock market (NYSEARCA:DIA) (NASDAQ:QQQ) (NYSEARCA:IWM), there is one brewing problem that's becoming more and more evident on the weekly chart… the VIX is getting compressed at unusually low levels.

It's not inherently the end of the world. Sometimes the market is volatile, and sometimes it isn't. But, at some point in the future, the VIX is going to return to its mean by moving higher, and based on history, that will likely put at least some bearish pressure (even if intermittent) on the market.

The VIX may need to crash and the market may need to surge to really hit the VIX's capitulation button and start a rally for the volatility index. Just know that the market doesn't have to enter a new bear market as a result. Either way, this low VIX level rarely lasts for more than a few weeks, and almost invariably hurts more than just a little (i.e. drives more than an 8% dip from high to low) when it's unwound. When will it happen? There's no way of saying.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: BigTrends Rapid Options Income clients have an open position in SPY options.

Source: Market Outlook - Bulls Back In Charge, For Now