Image source: Pixabay

Shrugging off the setback from two weeks ago, stocks logged a nice win last week to get back in the fight. In most cases, stocks or the indices used a nearby technical support line to assist in the effort (which is what you want to see).

There's still the not-so-small problem of being well overbought thanks to the enormous run-up from December's low. Sooner or later, that pressure's got to be relieved. The bulls are keeping that day at bay pretty well, though.

We'll weigh the bullish and bearish arguments in a moment. Let's first run through last week's economic announcements, which were far more encouraging than it seems like they should have been.

Economic Data Analysis

What a week. While the market's in just so-so shape and economic data has been hit-and-miss as of late, last week's news was strangely, decidedly bullish on two separate fronts.

The first of these fronts is real estate. You may recall homebuilder confidence has been improving for a couple of months now, and now we have a better idea why. Last month's sales of newly-built homes trounced estimates of 665,000, coming in at 763,000 to keep its growth streak alive.

Home Sales Charts

Source: National Board of Realtors, Census Bureau, TradeStation

Sales of existing homes clearly aren't following suit. That may be because current homeowners aren't getting the prices they want; they may not even be trying anymore. The demand is still there though, even with higher interest rates.

And sales aren't the only sign of a persistently firm real estate market. Prices are holding up as well when it seems they shouldn't be. Both the Case-Shiller Index and the FHFA Home Price Index continued to march forward in April, with the latter hitting another record high. The few people or builders that are selling seem to be getting the price they want.

Home Price Charts

Source: FHFA, Standard & Poor's, TradeStation

The other front where things are going surprisingly well again is the sentiment front. The Conference Board's consumer confidence score for June came in much better than the expected 103.8, hotting a multi-month high of 109.7. Last month's third and final look at the measure put the University of Michigan's sentiment measure at 64.4, also following through on May's rebound effort.

Consumer Sentiment Charts

Source: University of Michigan, Conference Board, TradeStation

Although not shown on a chart, know that personal spending and personal incomes were up in May, following April's improvements. It makes sense that people are starting to feel better about, well, apparently everything. Also know that the most recent (the third) calculation of Q1's GDP growth rate put it at 2%, well up from the previous estimate of 1.3% growth. These help fan the market's bullish flames.

Everything else is on the grid.

Economic Calendar

Source: Briefing.com

This holiday-shortened week is still going to be a big one.

The party starts on Monday with last month's ISM Manufacturing Index, followed on Thursday by the services index. The former is expected to remain below the pivotal 50 mark, but it should still be up from the recent, rapid drop. The ISM Services Index is also falling, but it's still above 50, and economists think it too will edge a little higher for June.

ISM Index Charts

Source: Institute of Supply Management, TradeStation

Friday's going to give us some huge data - last month's jobs report. These numbers have been bullish for a few months now. And, economists believe they'll remain so. Although, the forecasted payroll growth of 210,000 jobs is a lot considering the current unemployment rate is a very low 3.7%. That should even by enough job growth to drive the unemployment rate back down to 3.6%.

Unemployment Rate, Payroll Growth Charts

Source: Bureau of Labor Statistics, TradeStation

Stock Market Index Analysis

After last week, we have to give credit to the bulls. It would have been easy to simply roll over after the setback two weeks ago and keep on falling. And, there's certainly enough pent-up profit-taking potential to fuel more downside.

Instead, though, the bulls regrouped at their nearest technical floors and forced another winning week. Not all stocks are back above their most important peaks, and Friday's opening gaps are begging to be closed. But, there's plenty of hope for more immediate upside ahead.  

In any case, here's the daily chart of the Nasdaq Composite. Friday's opening gap (the gap between Thursday's high and Friday's low) is clear. The most noteworthy feature here, however, is how the composite only had to touch the 20-day moving average line (dark blue) to use it as a springboard. With this recovery move, the Nasdaq is now up 25% from March's low, and 35% above its bear market low.

Nasdaq Composite Daily Chart, with VXN

Source: TradeNavigator

Here's the weekly chart of the Nasdaq Composite for a little more perspective. From this vantage point we're reminded of just how much the index has soared in just the past seven weeks, punching through a potential ceiling at 13,170 as a result. That's raw power, but perhaps too much of it. More alarming than that is the volatility index (VXN). It's still at quite-low levels, which is fine for now, but at some point that proverbial piper will need to be paid.

Nasdaq Composite Weekly Chart, with VXN

Source: TradeNavigator

The S&P 500 is in the same basic situation. The resistance formerly at 4300 -- which is also a Fibonacci retracement line -- is still in the rearview mirror thanks to an amazing rally just since mid-May. But, the S&P 500's volatility index (VIX) is also at levels that are uncomfortably low. Just bear in mind that the VIX can remain "too low" for weeks on end while stocks rally.

S&P 500 Weekly Chart, with VIX

Source: TradeNavigator

Last but certainly not least, check out the daily chart of the Dow Jones Industrial Average. You may recall we've been watching the Dow get squeezed toward the tip of a converging wedge.

Three weeks ago, it finally broke above the upper boundary of this wedge pattern (breaking above some horizontal resistance as well) only to undo that breakout move a week later. Well, now the blue chip index is back above all of those technical ceilings, having pushed up and off of its 20-day moving average line (blue, highlighted).

Dow Jones Industrial Average Daily Chart

Source: TradeNavigator

As is the case for the S&P 500 and the Nasdaq Composite, the Dow made a gap at Friday's open that may beg to be filled back in. It doesn't have to be backfilled. But, the market tends not to leave gaps open. Even if the Dow Jones Industrial Average does come back to close the gap though, that doesn't necessarily mean an end to the rally effort.

The bottom line here is: things are bullish, but not ideally so. Everything was ideal until Friday, but the buyers arguably got ahead of themselves. Now they need to come back and regroup. Underscoring this likelihood -- and this isn't shown on any of our charts -- is the lack of volume behind Friday's sizable gains.

The move doesn't necessarily reflect the majority opinion. The big gaps may have been intimidating. A couple day's worth of lethargy or slight selling will dial back that doubt enough. Then the 20-day moving average lines can resume their role as the defining driver of this bullishness. 

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