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Although Friday's rebound was strong, it wasn't quite strong enough to pull the market back into the black for the shortened week…at least not the S&P 500. That S&P 500 Index (SPX) (SPY) lost 4.19 points (-0.3%), while the NASDAQ (NDX) (QQQ) lost 30.2 points (-0.94%). The Dow (INDU) (DIA) managed to eke out an 18.81 point advance (+0.1%) last week, but the lagging NASDAQ suggests stocks are more vulnerable than not right now; the NASDAQ generally leads, up and down. The small cap (and growth oriented) Russell 2000 (RUT) (IWM) also lost ground last week.

All that being said, we mentioned all three key indices for a reason this week - we're going to slice and dice them all, because each has a particular nuance (and a particular set of support and resistance lines) we need to watch going forward.

Before we get to any of that, however, let's recap last week's major economic data, and look at what's in store for this week.

Economic Calendar

There's little doubt as to what dominated the economic landscape last week…housing. And, it was quite encouraging. Housing starts totaled up to an annual pace of 890,000, while issued permits ran up to an annual pace of 925,000. The former was close to a new multi-year high, while the latter was near it; both numbers continue what's now become a two-year rising trend. Existing home sales reached an annualized pace of 4.92 million. That's not a multi-year high, but it's close to it. Even more compelling, however, is that the amount of existing home inventory now stands at 1.74 million. That's the lowest level we've seen since 1999, and mathematically means houses only stay on the market for 4.2 month, on average.

The other biggies from last week were producer inflation and consumer inflation. Both were tame, rising 0.2% and nil (respectively) for January, and rising 0.2% and 0.3% (again, respectively) on a core basis. As is stands now, the annualized producer inflation rate is 1.4%, and the consumer inflation rate is 1.59%. Both are palatable, and though more stimulus may be on the way, we've yet to see any real evidence that inflation is looming. Indeed, the brewing currency war may actually keep inflation pressured downward, by giving the U.S. dollar (UUP) lots of strength.

Economic Calendar

For this week we're going to get another big dose of housing data, starting with Tuesday's FHFA housing price index and new home sales figure. The new home (newly constructed) home figure has reflected the rise of starts and permits, and is projected to reach an annualized rate of 385,000 units for January. That's not a new multi-year high, but it's close; November's pace was 398,000. Still, the number's been steadily rising. Construction spending for January will be out on Friday. Look for a 0.5% increase.

The coming week is also a big one for consumer confidence levels. The Conference Board's score will be posted on Tuesday. The pros are looking for 62.0 for February, versus a reading of 58.6 for January. We'll also hear the final reading for February's Michigan Sentiment Index on Friday. Forecasters say it's going to come in at 76.3, versus last month's final score of 73.8. Both measures remain in broad uptrends, though each has plenty of dips between 2009 and now.

Thursday may end up being the biggest day of all for the week's economic data, however, with the government's second (though not final) guess regarding Q4′s GDP growth. The latest consensus is an increase of 0.5% versus a 0.1% decline the time out before that. While it's a better number, it's still not a great number.

Stock Market

In the interest of consistency, we'll take our usual look at the S&P 500, though most of our attention will be given to the other two indices, since they have so much more to tell us right now.

First and foremost, the bulls dodged a bullet last week by managing to push the S&P 500 back above the 20-day moving average line before the trading week ended. In that light alone, things are back to bullish - even if just tepidly. The CBOE Volatility Index (VIX) (VXX) is pushing a little lower too after Thursday's surge, implying that traders do indeed believe in the bullish shape things are taking again.

Perhaps better still is the fact that a major floor has developed at 1493 for the S&P 500. That was the low for the SPX with the early February stumble, and it's now where the lower 20-day Bollinger band is resting. Take a look.

S&P 500 & VIX - Daily

All that being said, it's hardly time to start celebrating yet. While support may have developed, and while we may be back above a key short-term moving average, the index still has to contend with a big ceiling at 1529…the upper Bollinger band. And just for the record, it was that upper band line that sent the S&P 5 sharply lower when it was brushed on Tuesday. Point being, this isn't a scenario where the bulls can blindly dive in. The NASDAQ tells us why.

NASDAQ

Although the S&P 500 may have been able to fight back to a close above its 20-day moving average line, the NASDAQ didn't. Even with its rebound on Friday, the NASDAQ Composite closed under that 20-day line. Worse, Friday's bullish effort was on noticeably weak volume. (So was the SPX's, but it didn't stand out quite as much.)

NASDAQ Composite & VXN - Daily

The good news is, the NASDAQ also has a lot of technical support right around the 3122 area where its lower 20-day Bollinger band and 50-day moving average line are close to converging. The NASDAQ's Volatility Index (VXN) also seems to have made a deliberate effort to move lower after bumping into its own resistance on Thursday. But, unless the composite can actually make its way above and beyond its upper band line at 3216, the bears are still in the hunt here. Also note that the overall rate of progress here has been near anemic since early-January surge.

Dow Jones Industrial Average

While the S&P 500 and the NASDAQ Composite have both drawn clear lines in the sand as to where their next breakouts or breakdowns will start, the Dow Jones Industrial Average has painted an even clearer picture. Its ceiling is around 14,030, and its floor is at 13,860. Both levels have been put into place by prior highs and lows, and/or the 20-day Bollinger band lines that are now squeezing in from both directions. One of those lines or the other will have to snap eventually, and after at least three weeks of consolidation, that move could begin a chain reaction of more movement in the same direction.

DJIA - Daily

Bottom Line

Almost needless to say, this is a pivotal week for stocks. Though it's not trending in either direction yet, the underpinnings for movement are in places, and all three indices have made it fairly clear where the make-or-break levels are. Just bear in mind we may not see those lines in the sand broken by their respective indices all on the same day. But, if we see two of the three indices move beyond their respective boundaries for a couple of days in a row, it may be time to start taking action.

Source: Market Outlook - Pivotal Week Ahead For Stocks

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