While not a whole heck of a lot, the S&P500 did fall by almost 0.7% last week on modest volume. Volatility crept higher—the VIX Index rose from super low levels to the mid-teens; this is still nothing to worry about, but it shows that investors are getting worried…..even as the overall S&P remains not too far below all-time record highs which were achieved in the summer months.
In US macro news, the week got off to a poor start with the Chicago Fed National Activity Index printing another negative result. Then the Case Shiller Home Price Index registered another disappointing number—prices fell on average across 20 major cities in the US. Consumer confidence dropped. The Richmond Fed also disappointed with a negative print. New home sales missed. Durable goods orders also missed; although ex-autos, durable goods orders were slightly better than expected. Initial jobless claims disappointed. And consumer sentiment also missed. On the positive side, pending home sales beat consensus estimates. International trade also beat estimates, and Q3 GDP came in slightly stronger than expected, but that was due to inventory builds rather than growth in spending which did not drive this growth in GDP.
The short-term topping pattern that began to take shape at the end of the summer has only been reinforced by last week’s modest loss in the S&P500. This topping pattern is now clearly visible not only on the daily charts, but also on the more important weekly charts. As valuations (based on price-to-earnings, price-to-sales, and price-to-normalized earnings) cling to the extremely high end of long-term historical ranges, the signals coming out of technical analysis become more important because they often provide some of the earliest warnings that prices are headed for a fall. And the signals coming from even the most basic interpretation of the price and momentum indicators is that the S&P500 is poised for a more meaningful retreat.