Weekly Market Outlook – Stuck In The Middle With You

Capacity Utilization, Industrial Production Charts

Source: Thomson Reuters

Don't overlook the industrial output and capacity utilization data. It's one of the few data nuggets with a near-perfect correlation with corporate earnings and the long-term direction of the market.

Stock Market Index Analysis

In retrospect, the 2815 area is a real problem for the S&P 500. The index topped out there in October and November, and then failed to move above that line with last week's effort. End result? The index is now back below a couple of key moving average lines, including the key 200-day moving average line (green).

S&P 500 Daily Chart, with Volume

Source: TradeStation

But Friday ended on a high note? Yes, it did, which on the surface may be encouraging. There's a lot of psychology going on right now though, and it's actually a double-edged sword.

A bad start and even worse finish on Friday could have been considered a capitulation of sorts... particularly if it was a high-volume affair. Instead we got a bad start and an intraday bounceback, and saw it unfurl on low volume. It may have been nothing more than a respite from a selling effort that will get going in earnest again this week. Traders haven't yet suffered that spike in fear that tends to accompany a good, long-lasting bottom.

Same basic story for the NASDAQ Composite - the cross above the 200-day moving average line last month was impressive, but as soon as the October/November highs were met, the effort faded.

NASDAQ Composite Daily Chart, with Volume

Source: TradeStation

Both indices are now in a proverbial no-man's land, below the 20-day and 200-day moving averages, but above the 50-day (purple) and 100-day (gray) moving average lines. The market could easily bounce around between that floor and ceiling for a while, never making any net progress. The real action will be outside of those boundaries.

Still, despite Friday's intraday rebound, the tide is bearish.

Zoom out to the weekly chart of the S&P 500 for a moment. Last week's 2.1% tumble is survivable, but the past two major setbacks from October and even as far back as February of last year got started with big jolts. The recent mindset has been once it starts to rain, traders tend to make it pour.

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