While the S&P500 didn’t drop last week, the relentless upward momentum that started in late February seems to have weakened. The large cap index rose just a bit, 10 points, but that all occurred early in the week; the final three days of the week were all down or zero gain days. Volume was light, and volatility edged down only slightly because it was already near cycle lows in the previous week; in other words, volatility didn’t have much more room to fall, even if stocks rose my a meaningful amount, which didn’t happen.
On the macro front, the news was very weak. The housing market index kicked off the week with a miss relative to expectations. Housing starts also missed. The Philly Fed business outlook survey missed badly. The Chicago Fed National Activity Index fell more deeply into negative territory. Leading indicators disappointed. And PMI manufacturing index flash result also missed. The only positive news for the week was the better than expected initial claims index, which may start to reverse soon as firms such as Intel lay off 12,000 workers at a time, which they did last week. Finally, existing home sales came in slightly better than expected.
So the technical picture for last week is one of delay—the upward momentum seems to be fading in the S&P. But at the same time, a meaningful downward move has not started. So we have to wait one more week for the market to make a more visible decision. Will it continue rising and shake off the recent momentum loss? This could take it to new all-time highs. Or will the recent loss of upward momentum shift into a harder downward move? This would fit the long-term topping pattern that began well over a year ago.
Over the next five trading days, we’ll have our answer!