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Last week marks the fourth winning week in a row and the thirteenth winning week of the past eighteen. To this end, the S&P 500 is now up nearly 13% from March's low. It would be misguided, however, to suggest the rally isn't running out of steam. Overall volume is fading, and it's getting tougher for the market to hold onto gains... even when the news is good.

Besides, it looks like we're just due for a test.

We'll take a detailed look at things below, as we always do. First though (and as we also always do), let's run through last week's biggest economic announcements and preview what's coming this week in terms of market-moving economic data.
 

Economic Data Analysis

We mentioned a week ago that there was only one item of interest in the lineup this week... May's services activity index from the Institute of Supply Management.

The figure we got wasn't worth the wait. Rather than edging a little higher, it fell just a bit from April's reading of 51.9%. The print of 50.3% is still above the critical 50 mark. With the ISM's manufacturing index still in a steady decline well below  though, it's difficult not to think the economy is slowing here.

ISM Index Charts

Source: Institute of Supply Management, TradeStation

Everything else is on the grid.

Economic Calendar

Source: Briefing.com

This week is loaded, and then some.

It's a huge week for inflation figures, and appropriately, for interest rates as well. May's consumer inflation figures will be posted on Tuesday, and on Wednesday we'll get last month's producer inflation numbers a few hours before we hear the Federal Reserve's decision on interest rates. The market's better the Fed Funds Rate will remain unchanged, largely because investors are looking for inflation rates to continue cooling off.

Inflation Rate (Annualized) Charts

Source: Bureau of Labor Statistics, TradeStation

On Thursday look for the Fed's capacity utilization and industrial production figures for last month. These figures have been slightly below their heightened numbers seen in the middle of last year, when we were just moving into a post-pandemic recovery. And, economists aren't looking for any real leap forward this time around. That's no real surprise given all the data other than jobs.

Capacity Utilization and Industrial Productivity Charts

Source: Federal Reserve, TradeStation

Last but not least, we'll hear May's retail sales results on Thursday as well, rounding out this week's snapshot of consumerism. Forecasts are calling for slight growth - again. Like most other economic metrics though, spending isn't exactly firmer now than it was for the better part of last year. We could use a shot in the arm here. But, consumers need a shot in the wallet first.

Retail Sales Charts

Source: Census Bureau, TradeStation
 

Stock Market Index Analysis

We start this week with a look at the weekly chart of the S&P 500 -- again -- to paint the bigger-picture first. And the bigger picture is, the rally is still underway. The breakout that first took shape early this year is not only still underway, but we're moving deeper into higher highs (following March's higher low). It was the fourth winning week in a row.

S&P 500 Weekly Chart, with VIX

Source: TradeNavigator

Except, the weakness of the win is worrying. The 0.4% gain the S&P 500 logged last week was the smallest of those four weeks. The rally us slowing down... something you tend to see happen right before pullbacks.

And that's not the only red flag for the rally. Take a closer look at the weekly chart's entire bar above, and Friday's bar on the daily chart below. Friday's close was well below Friday's high. In fact, Friday's close was near the day's low, leading to a close in the middle of the week's entire high-to-low range... a doji. That's also something you tend to see at a pivot point from an uptrend into a downtrend.

S&P 500 Daily Chart, with VIX and RSI

Source: TradeNavigator

Yet, that's still not the only worry in place here. Take a look at the weekly chart of the S&P 500 below; this one also plots Fibonacci retracement lines for the pullback from its early-2022 high to October's low. Last week's high of 4322? That's right at the 61.8% Fibonacci retracement level, which is right where you'd expect a rally to take a break.

S&P 500 Weekly Chart, with Fibonacci Retracement Lines

Source: TradeNavigator

And the technical ceilings aren't just in place for the S&P 500. The Dow Jones Industrial Average is also stuck under resistance. In fact, it's stuck below several different technical ceilings spanning from 33,900 to horizontal resistance at 34,300.

Dow Jones Industrial Average Daily Chart

Source: TradeNavigator

There's more to the Dow's story than just its falling resistance line though. There's also rising support (red), established what is essentially a converging wedge. And, the Dow itself is near the very tip of that wedge, with little room left to move. This will soon force the Dow Jones Industrial Average to move outside of one of these boundaries, forcing the bulls or the bears to commit to direction. Once they commit, don't be surprised to see stocks flung firmly in that direction for a while. Note that the Dow is above all of its key moving average lines, suggesting that the bulls have the edge here even if they haven't made any net progress in months.

The risk? Back on the daily and weekly charts of the S&P 500, the volatility index (VIX) has moved to even lower lows. That in and of itself isn't bearish. But, it does set the stage for an eventual pullback stemming from a lack of fear. Just don't try to predict that eventuality. Rather, look for the indexes to break under their aforementioned technical support in conjunction with a rising VIX. That will be the big concern if and when it happens.

Again though, the fact that the rally is running out of steam now is good reason to keep an eye out for a possible pullback.

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