All over the map. That's the only way to describe last week…all over the map. We got off to a great start on Monday, dipped into the red for the week by Thursday, then started a rally that carried through to the end of the day on Friday, pulling us back into the black (by 0.81%) for the week. It was the twelfth winning week in the last fifteen, and quickly ended the modest bearish effort from the week before. When will the bears finally wear themselves out?
We'll look at all the possibilities below. First though, we need to paint the bigger economic picture. We've got a big week coming up, particularly in terms of the employment situation.
It was a big week for economic data last week, in terms of quality as well as quantity. And, it was a week of mixed messages.
On the positive side of the table, last quarter's GDP growth was confirmed at 3.0%, and durable orders rose by 2.2% last month (though only up 1.6% not counting cars). Initial unemployment claims as well as ongoing claims both continued to fall, extending the march into multi-year low territory. Personal income was up 0.2%, while spending was up 0.8% in February.
On the downside, pending home sales fell 0.5%, the Case Shiller (home price) index fell 3.8% for January, and the MBA Mortgage Index slumped 2.7% last week; clearly real estate isn't firing on all cylinders.
All the rest is on the table below.
As for the coming week, it's going to be another big one. Here are the biggies, day by day:
* Tuesday: Will February's factory orders mirror last week's durable orders? Probably. The pros are looking for a 1.4% improvement. Also, did car sales for March improve? They've been lethargic, and aren't expected to be much better now.
* Wednesday: We'll get an early glimpse at the official jobs-creation number with Wednesday's ADP Employment change figure; the forecast is for a 213K increase.
* Thursday: Unemployment claims, as usual. Look for more gradually-lower numbers.
* Friday: The unemployment rate and payroll numbers are clearly the biggies for the week. The experts say we'll add another 200K nonfarm jobs, though that won't be enough to move the unemployment rate dial from 8.3%. We'll also get February's consumer credit levels. It's been growing in the high teens of billions, mostly thanks to student loan demand. For February, the growth is expected to have slumped to $14.0 billion, though that's still huge.
When it was all said and done, the S&P 500 (SPX) (SPY) advanced 11.36 points (+0.81%) last week to close at 1408.47. That's the highest weekly close in years, and the index also hit its highest high in years last week . As it stands right now, the SPX is up 18.6% since the mid-December pullback…. definitely on the outside range of 'normal' for a continuous, uninterrupted rally.
As amazing as the size of the rally is at this point, this big move hasn't created the problem for itself that most rallies of this size usually do create for themselves; it's not overbought. As you'll see on the daily chart below, as persistent as the bulls have been, they've never pushed their luck by pushing above the upper Bollinger bands (orange and gray).
Simultaneously, the S&P 500 has continued to find support at all the key places it should be finding support at. Last week it was the 20-day moving average line (blue), brushed by Thursday's low of 1391.56… where the rebound started. In early March, the floor was the lower 20-day Bollinger band (gray). The 20-day average line has been support for the past several weeks, in fact. Point being, it hasn't taken outright miracles to keep the rally going. Take a look.
S&P 500 - Daily
click to enlarge
What's amazing about this chart isn't just the persistence if the index itself though. The CBOE Volatility Index (VIX) (VXX) (VXZ) continues to drive lower too. Though since mid-February we've seen short hints that the Volatility Index is itching to reverse course and move higher, we've not actually seen it happen yet. Instead, each time the VIX has hinted at an upward move, it manages to even lower. On the other hand…
…we've mentioned this a couple of times lately, but after seeing it three weeks straight, it's beginning to be a very serious worry. What's that? While the VIX up until three weeks ago was moving even lower each time it bounced a little, since mid-March, it's not actually been making lower lows. Rather, it's been finding a floor at 14.8. That's a problem, simply because this is about where it's found a floor and begun both of the significant pullbacks since 2009. [Neither of the prior pullbacks looked like big problems were around the corner either, right before they began. So, let's not dismiss the possibility now.]
This is most evident on the weekly chart.
S&P 500 - Weekly
As for the bearish clue we'll need to see before finally saying the uptrend in major indices like (DIA) (QQQ) (IWM) is over, at this point it's going to take a combination of breakdown signals from the S&P 500 as well as simultaneously uptrend signals from the VIX. They're all plotted on the daily chart above, though we'll save detailed descriptions of the technical events for if-and-when they happen.