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Even with the rough start, the bulls managed to do what they've been doing so well for months now…find a reason - any reason - to keep on buying. Thanks to renewed optimism on Thursday and Friday, the market managed to fight its way to yet-another record close last week.

An overdone and perhaps even unhealthy rally? Yes, but then again, the market has a funny way of climbing a wall of worry. And, as they say, you can't fight the tape. Right or wrong, if the bulls don't want to let up, then there's no sense in stepping in front of that oncoming (albeit slow-moving) train.

We'll look at the details of this amazingly-persistent runup in the broad market (DIA) (QQQ) (IWM) in a second. First let's paint the bigger picture with the key economic numbers from last week and this week.

Economic Calendar

While last week's economic data dance-card may have been full, truth be told, not much of it was overly important stuff. The biggies were the inflation numbers, retail sales, and existing home sales. Beyond that there was nothing that was market-moving, so we'll limit our look to the heavy-hitters, starting with retail sales.

In a nutshell, U.S. consumers spent more on October than the pros were expecting them too. Indeed, even factoring in the two-week government shutdown, retail consumption was solid. With cars, retail sales were up 0.4% (versus expectations of a 0.1% increase), and even when removing auto sales from the equation, retail spending grew 0.2% last month (also versus expectations of a 0.1% increase). The economy may not be on its death bed after all.

As for inflation, well, that could seem like a problem unless one took a very detailed look at how and why the overall numbers got to where they are.

As it stands right now, the annualized inflation rate is 0.96%, down from September's rate of 1.18%. In fact, it's the lowest annualized inflation rate we've seen since late-2009 when we finally shrugged off deflation. And yes, the 0.96% rate is "too low", as it borders on deflation again (which is whole different kind of economic headache). But…

In simplest terms, while tepid inflation indicates a lack of consumer (or business) demand and/or an unhealthy lack of pricing power, it should be understood that most of the decline in the inflation rate has stemmed from a decline in the price of energy and food, which - to put it bluntly - had skyrocketed to painful levels through the early part of this year. On a core basis (excluding food and energy costs), last month's inflation rates were quite normal. This is true for consumers as well as producers, like food processing companies and factories. While there is some cause for mild concern regarding the oddly-low inflation rate, the waning rate isn't as bad as it seems on the surface.

Inflation Chart

Finally, existing home sales fell again, this time from 5.2 million to a pace of 5.12 million. That's the second monthly decline in a row, but it's still a pretty strong figure. We won't get the full perspective on the strength of the housing market until this week, however, when we hear two months' worth of building permits and housing starts numbers.

Real Estate Sales, Construction Data Chart

Economic Calendar

First and foremost, note that all of this week's economic numbers are being crammed into the first three days of the week, in order to get them all on before the Thanksgiving break. Second, note that we're going to be hearing September's as well as October's new construction data this week, as September's data had been delayed by the government shutdown. We'll table any discussion about the real estate market's health until then, adding the Case-Shiller and FHFA home price/index data to the discussion.

The only other data sets worth a closer inspection this week will be the Conference Board's one and only consumer confidence reading for October, and the third and final consumer sentiment reading via the Michigan Sentiment survey. You might recall that both fell sharply last month…a drop mostly fueled by frustration with the government shutdown. It'll be interesting to see if those feeling are partially or even fully reversed now that things are back to normal.

Consumer Sentiment/Confidence Chart

Stock Market Index Analysis

When it was all said and done, the S&P 500 (SPX) (SPY) advanced 6.58 points last week (+0.366%) to close at 1804.76. That's the best weekly close ever, and Friday's intraday high of 1804.84 was also a record breaker. Though volume wasn't particularly strong, it's tough to deny the bulls aren't in charge, even if they are defying the odds. As of the end of last week, the S&P 500 has gained 8.9% since early October, and hasn't suffered a dip of more than 1.3% during that time. That's about as bullish as it gets. But, is it too bullish for our own good?

Just to put things in the right perspective before getting to the nitty gritty, let's take a big step back and look at the long-term weekly chart. It goes back two years. Not only have we not suffered a pullback of 10% or more during that time, we've not even suffered a significant setback (5% or more) since late-2012. But, since the last major pullback in late 2012, we've gained 33%, and since the last 10% dip in late-2011, the S&P 500 has advanced 56%. Take a look.

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

The size of the uninterrupted gain is intimidating enough, but the whole thing is even more alarming when we see the S&P 500 is bumping into some serious resistance around 1816. That's where the upper 52-week Bollinger band is right now, as well as where a long-term rising resistance line (dashed) is at this time. Either one by itself could be a means for the bears to take control again, but with them converging at the same point, the likelihood of resistance at that point is more than doubled.

Point being, we're at a known ceiling, and it would make sense for the bears to try and cut the legs out from underneath the rally here. Throw in the fact that the CBOE Volatility Index (VIX) (VXX) is once again at a major support level and may be itching to reverse course, adding to the market's bearish potential.

There's just one problem with the theory...the market's been defying the odds and defying logic for weeks now. Why would it stop doing so now?

It's not an entirely hypothetical question. The goal in asking it, however, is simply to underscore how much the market has pushed its luck. It also sets up a more pertinent discussion of the S&P 500's daily chart, which can be found below.

Like the weekly chart, the daily chart is pressing its luck be pressing into at least one of its upper Bollinger bands. Also like the weekly chart, the daily chart has been and still is plowing ahead, pushing its upper band lines higher the whole time.

SPX & VIX - Daily Chart
(click to enlarge)

So what's the conclusion? The same as before… the momentum is bullish, so we'll go with that flow, but we all need to bear in mind the rally is more than ripe enough that a small stumble could turn into a big one without a second thought. The VIX is once again at uncomfortable lows, and apparently unwilling to move under its key floor at 12.30.

Given the potential pullback - though not in motion yet - it may be wise to at least consider where such a pullback may stop. The first line in the sand is at 1775 (dashed), which was not only a former ceiling, but where the 20-day moving average line is right. There's no guarantee the bleeding will stop there (remember it's been more than two years since we've seen a 10% correction); that's just the first best place for the bulls to put up a fight. It doesn't matter right now, though. Right now, the momentum remains to the upside.

(click to enlarge)

Source: Market Outlook - Go With The Flow (For Now)