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Though the second losing week in a row wasn't as bad as the first, in some ways, it was more damaging. We saw lower lows made by most of the major indices, and even the ones that didn't were pushed to the brink. And in all cases it became pretty clear that support levels are hanging by a thread. If the bulls don't pull a trick out of their hat this week, things could get real ugly, real quick.

We'll look at the near-term good and bad below, right after we start to paint the bigger picture with the broad strokes of economic data.

Economic Calendar

Last week was light in terms of the number of economic data nuggets we had to sift through, though a handful of important numbers were put on the table.

A couple of them were, of course, in the unemployment claims arena. Initial claims came in about even, at 367K, while continuing claims rolled in at 3.229 million, slightly down from the previous week's 3.29 million. Both have been rather stagnant of late.

We also saw a surprise drop in producer inflation (the input costs incurred by factories and plants in making goods ultimately passed on to consumers). Those prices dropped by 0.2% overall, but on a core basis (excluding food and energy) were still only up 0.2% for April. It certainly pokes the 'rampant inflation' theory from a year ago in the eye, and gives the Fed some room to maneuver. This Tuesday's consumer inflation snapshot will round out the picture, though the pros don't think the change will be much different from that perspective than it was for producers.

And what about the wild surge in consumer credit levels? Forecasters were only expecting an $11.0 billion increase for March, but we saw a $21.4 billion increase instead. It's more of the same story we've already been seeing…. the bulk of it was student loans. Students are trying to secure loan money now before a likely increase in student loan rates on July 1st.

Economic Calendar

As for the coming week, the fireworks don't begin until Tuesday, but they begin with a bang. We'll hear about April's retail sales as well as last month's consumer inflation rate that morning. Retail spending should be up a tepid 0.2%, with or without autos. Consumer inflation should be non-existent overall, and only up 0.2% on a core (excluding food and energy) basis. Again, inflation is not anywhere close to being in a position to derail the economy here - deflation may be the bigger worry at this point.

Wednesday's housing starts and building permits should be a meaningful update on the construction front; both should hold steady. That won't be the important data from Wednesday though. No, that honor belongs to capacity utilization and industrial production… two data sets with an amazingly high correlation with the market's long-term direction [neither means much for the short-term ebb and flow though]. Each are expected to grow modestly, though that's enough to keep the bull market alive.

We'll hear about last week's unemployment claims on Thursday, though economists don't see much change in the lineup.

All in all there's more good than bad ready to be unveiled on the economic front. However, given how small the improvements are, investors may still find reason to be dissatisfied.

Stock Markets

To the bulls' credit, they still haven't let the bears push them back behind the last bastion of a foothold (NYSEARCA:DIA) (NASDAQ:QQQ) (NYSEARCA:IWM). On the other hand, it may be a lost cause.

It's quite clear the sellers have the momentum here, as indicated by last week's lower low, under the S&P 500 Index (SPX) (NYSEARCA:SPY) April low of 1357, (dashed), and the fact that the 20-day moving average (blue) has crossed under the 50-day line (purple)

That 'last bastion of a foothold' for the S&P 500 is the floor at 1346, where the lower 20-day Bollinger band (dark gray) as well as the lower 50-day Bollinger band (orange) have merged, just in time to set up a support level, and perhaps even inspire a rebound.

That's a long shot at this point though. The bears have convincingly made their point, and after four days of dancing with those two lower Bollinger bands, the bulls have come up with absolutely nothing. Take a look at the daily chart, but be sure to keep reading.

SPX & VIX - Daily

(click to enlarge)

At the same time, the CBOE Volatility Index (VIX) (NYSEARCA:VXX) (NYSEARCA:VXZ) is now officially trending higher…which is bearish for stocks. That upward move from the VIX actually started in mid-April, but didn't fully materialize until this week after the VIX got comfortable above its key moving average lines [which have also crossed over for the first time since the middle of last year].

The VIX is also putting pressure on its upper 20-day Bollinger band (red). If the VIX's ceiling at 21.1 (dashed) doesn't hold it down at the same time the S&P 500's floor at 1346 doesn't hold it up, that should pretty much start the next leg of the current market downtrend.

Now, with the details of the daily chart fresh in your mind, take a look at the weekly chart for the needed perspective.

S&P 500 - Weekly
(click to enlarge)

This is a message we've sent before, but it merits repeating now…. the market's due for a dip, and the chart - as well as the VIX - say that dip is unfurling now. It's simply a pattern that's been in place since the bull market began back in early 2009. The SPX is falling now, and the VIX is rising now; even just a quick visual glance can tell you that. There's still a slight possibility the bulls can step in here and stave off a pullback. That's the less likely outcome here, now, however.

If things do get really nasty from here, it may take a move back to the 1270-ish area before the bleeding is stopped.

Index Comparison

We mentioned above that all the major indices were hanging by a thread. Here's a closer look at that reality.

The 'thread' is the 100-day simple moving average lines, which are plotted in gray for all the indices on the chart below. In all three cases the sellers tested that line as a support level. Though the Dow was the only index to close under it, it's clear the NASDAQ and the S&P 500 are both right on the verge. More than that though, the shape of all three index charts almost says the market's trying to make it happen - it just needs one more good nudge.

The most likely floors for another bearish leg here would be the 200-day lines, which are plotted in green.

Index Charts - Dow, S&P 500, NASDAQ Composite

(click to enlarge)

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Weekly Market Outlook: Bulls Hanging On By A Thread