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What a week! Stocks got whacked on Friday, we saw a surprise winner in a great Kentucky Derby, employment levels managed to turn things around before they got dire (sort of), and oil is back under $100 for the first time since February. What the heck is going on? We'll look at almost all of it below, starting from the top - with the economic data - and working our way down. You might want to hang on tight too, 'cause we got a lot to get through, wrapping up with a quick earnings scoreboard.

Economic Calendar

There was just too much stuff in the economic lineup last week to touch on all of it, so we're just going to hit the highlights, and make the key points…starting with the obvious biggie - the employment situation.

The good news is, the unemployment rate dropped to 8.1%. Almost just as good, the number of people on extended and emergency benefits also dropped, even if just slightly. For the weekly data, both continuing claims as well as new claims fell, likely renewing well-established downtrends for each.

Yet, all that moderately good news wasn't enough to trump the one piece of bad news… that only 115K nonfarm payrolls were added in April, and only 130K nonfarm private payrolls (meaning the government shed 15K workers). Neither came close to expectations, and seeing as how this is the market's biggest vulnerability - low employment - the market voted with its dollars, selling stocks in protest of tepid job creation.

Unemployment Snapshot, as of April 2012

(click to enlarge)

Everything else was a mixed bag. Income was up 0.4%, beating the expected 0.2% rise for March, but spending - at a 0.3% increase - fell short of the forecasted 0.5% improvement. Factory orders were down by 1.5%, yet the ISM Index for April grew rose from 53.4 to 54.8. The Chicago PMI reading fell from 62.2 to 56.2, yet while construction spending was nearly flat at a 0.1% rise…. though that easily topped the forecasted 1.4% dip.

In other words, last week gave the bears enough ammo and motivation to dig in, so they did.

Economic Calendar

This week should be much less hectic on the economic front.

Consumer credit kicks things off on Monday. The pros say total credit usage is going to rise by $11.0, which is significantly better than February's $8.7 billion increase, yet actually below most of the recent readings (six months' worth) in the high teens.

Then there's not much else in the lineup until Thursday's unemployment claims, though they're clearly going to make waves. Economists say this week's numbers should roll in at around last week's levels. Any moderate variation above or below could mean fireworks for the better or worse (depending on the direction of the variation). Just be ready.

On Friday we'll hear about producers' inflation… the PPI. It should be flat overall, and only up 0.2% on a core basis. Inflation has NOT become the problem many expected tit to become a year ago. The consumer inflation numbers won't be out until the following Tuesday.

Stock Markets

Last week's 34.26 point (-2.44%) dip for the S&P 500 (SPX) (SPY) was the biggest weekly loss so far this year, leaving the index at 1369.10. That's not even the troubling part of it though (for the bulls). No, the most troubling part about last week is that the SPX closed back under the 20-day and 50-day moving averages - again - just a week after it fought so hard to crawl back above them. There's a nuance this time, though, that makes this one a little more troubling than the last…… this time, the pullback pulled the 20-day average line (blue) under the 50-day line (purple) for the first time since December. Not good. Take a look, but keep reading.

SPX & VIX - Daily
(click to enlarge)

You'll see the same basic bearish idea on the weekly chart in a second, but before you stick your head in the even, let's look at this thing from the other angle.

Yes, for a while now we've been (mostly) pounding a bearish drum warning (DIA) (QQQ) (IWM). It wasn't a call for a new bear market. It was just an expectation of a modest correction after the market become so incredibly overbought. Last week's dip is part of that correction effort. Here's the thing… the S&P 500 stayed that pullback off for so long, it gave the index's key long-term moving average lines like the 100-day and 200-day average time to catch up. The 100-day average (gray) is now at 1343, and the 200-day line (green) is at 1311.

There's another well-proven floor for the SPX at 1357, which lines up all of April's lows (dashed), and is also where the lower 20-day Bollinger band is waiting.

Point being, there's not a ton of room left to fall before the S&P 500 finds organic support. Until the SPX actually moves under at least the 1342 level, we can only chalk the bearish pressure up to volatility.

To make the mess even more complicated given the size of Friday's plunge (-1.6%), there's a reasonable chance of a dead-cat bounce in the making. It could be an inspiration for the bulls to give it another try, making most of the prior discussion moot.

Back on the other side of the fence, the CBOE Volatility Index (VIX) (VXX) (VXZ) has resumed its uptrend, and like the market's bigger-picture shift, the VIX's 20-day average is now above the 50-day line for the first time since last fall. And, visually speaking, the daily chart of the VIX does indeed show us upward momentum is trying to develop.

If you really want to put it all in perspective though, check out the weekly chart. With the weekly view of the S&P 500, we can see just how vulnerable the market is following the big December-through-April runup. If the floors around 1345 don't hold up, there's not much else left to stop the bleeding for a while.

More than that though, it's with the weekly chart that we can see how hard the VIX is trying to get its new uptrend going. If the VIX can get above the recent ceiling of 21.0, then odds are the SPX won't find support until the 1275-ish area.

In the meantime, all we can do is wait and see how this unfolds.

SPX & VIX - Weekly

(click to enlarge)

Source: Weekly Market Outlook: Jobs, Jobs, Jobs