Market Outlook - Seasonal Calendar Trends In Play Here

Includes: DIA, IWM, QQQ, SPY, VXX
by: Price Headley, CFA

Stocks managed to make a decent gain last week. Then again, after getting pounded the week before, a bounce of some sort was inevitable. And, when push came to shove on the last day of the week, the bears took control again.

So now what? Simply put, the market's at a crossroads. The S&P 500 (SPX) (NYSEARCA:SPY) (as well as all the other indices such as (NYSEARCA:DIA) (NYSEARCA:IWM) (NASDAQ:QQQ)) is within reach of breaking above a key ceiling and rekindling the rally. The trouble is, the S&P 500 is also within reach of breaking under a key floor and rekindling the breakdown.

We'll explain the bull and the bear case in a moment. Let's first slice and dice the major economic numbers for last week, and what's on tap for this week.

Economic Calendar

Truth be told, there wasn't a lot worth dissecting with last week's economic numbers. [There was a lot of it, but not much that meant anything.] Here's what you need to know.

* Durable orders were up 3.6% in May, with transportation. Taking planes, trains, and automobiles out of the picture, orders were only higher by 0.7%.

* Consumer confidence also rolled in much higher…to five-year highs, in fact. The Conference Board's consumer confidence score for June came in at 81.4, up from 74.3. And, the Michigan Sentiment Index's final reading ended June with a final reading of 84.1, down a tad from May's final score of 84.5. That 84.5 level was a multi-year high at the time, though 84.1 is still very strong.

* New home sales for May hit a pace of 476,000 per year, up from 466,000, while pending home sales were up 6.7% in May. Both were also at multi-year high levels. For what it's worth - which isn't much - the Case-Shiller 20-city index of home prices was up 12.10% for April.

And what about the final Q1 GDP reading, which ended up growing only 1.8% versus prior estimates of 2.4%? At this point (now at the end of Q2), it's old news, and no longer impacting the market. Everything else is on the grid below.

Economic Calendar

We've got a ton of things in the lineup for this week, and many of them will move the market. The focal point, however, will be on jobs and the employment picture.

The party starts on Wednesday, the 3rd, with the Challenger Job Cuts forecast and the ADP Employment Change number. Economists expect ADP to say 150,000 new jobs were created last month, which roughly jives with the figure anticipated from the Department of Labor on Friday. The pros are expecting the DOL to say 165,000 new nonfarm jobs (179,000 private payrolls) were created in June, which is down a bit from May's figure. It shouldn't be enough to change the unemployment rate from 7.6%, however. This will be the figure everybody's watching, as it's the biggie Ben Bernanke is watching as a way to determine when the Fed can actually ratchet down the QE efforts.

Stock Market

Just to set the right tone, last week's bounce didn't actually snap the short-term downtrend… a downtrend that could soon become an intermediate-term downtrend. The market is quite literally in a no-man's land, getting squeezed by falling resistance and rising support. Something's got to give soon, and though the bulls are still in the game, the bear has an edge. 'Nuff said? OK, here we go.

The bulls were able to carry the S&P 500 right up to the 50-day moving average line (purple). It took no time at all - after Thursday's brush of the 50-day line - to kick-start a pullback. Maybe it was just a pre-weekend "portfolio cleanup." Or, maybe it was the realization that stocks are in some bigger trouble here.

It wouldn't be hard to believe. Though the market rallied for three days straight in the middle of last week, the volume behind all three days was not only weak to begin with, but got progressively weaker as those three days rolled on. Then on Friday (when stocks started to fall again), the selling volume certainly perked up. Take a look.

S&P 500 & VIX - Daily Chart

The bull case: Though the S&P 500 is being pressed lower by the 50-day as well as the 20-day moving average lines, there's also a ton of support developing right around 1576. That's where the lower 20-day Bollinger band is right now, and close to where the 100-day moving average line and the lower 50-day Bollinger band will be within a couple of days… right around the time the S&P 500 would be able to test the 1576 area in the first place.

We continue to lean on the bearish side of the fence, though fully acknowledging that until the S&P 500 wiggles its way out of the 1576/1620 trading range, any outlook is potentially meaningless.

Adding to the bearish argument - though just barely - is the way the CBOE Volatility Index (VIX) (NYSEARCA:VXX) pushed up just a little on Friday. It wasn't a decisive push, but another higher close for the VIX would put it back above the 20-day moving average line. If we get that breakout as well as a technical breakdown from the S&P 500 (under the 1598 line, dashed), that would be a huge first step for the bears. Just wait for the step; this isn't an environment where we can trade on hope or expectations.

Nothing really changes when you look at the weekly chart. The S&P 500 broke under a major support line two weeks ago, and though it bounced last week, it's still under that rising floor.

S&P 500 & VIX - Weekly Chart

Bottom line: This is a pivotal week for stocks, but technically speaking, the indices haven't dropped any convincing hints in either direction yet.

Vital Stats

For what it's worth, the S&P 500 ended the first half of 2013 with a 12.6% gain. That's the best first half since 1999, despite the fact that the index had been up as much as 17.2% as of mid-May. That can be good, or bad. Momentum is great, but an overbought market isn't.

All things considered, that sizable gain could present problems now, as we're entering what's usually a weak to semi-bearish time of year. The average July gives us a 0.8% gain, with almost as many down months as up months… 34 winning years to 29 losing years. The average August is a loser, doling out a 0.2% loss (36 up, and 27 down). September is also a loser, usually, giving us a 0.7% dip (35 down years, and 28 up). That doesn't bode especially well for Q3 this year.

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.