For the second week in a row stocks took a loss, although last week’s wasn’t as big as the prior one. It was also a lower-volume pullback…

… except for the Nasdaq Composite. 

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The tech-heavy index actually accelerated its slide, and did so on higher volume. It’s a hint that investors are specifically dumping their more aggressive growth names, perhaps seeking out safer blue chips.

Whatever the case, the selling dragged some indexes below key support levels, and left others right on the brink of doing so. It’s a reason for concern if you need the broad market to remain in bullish mode.

We’ll look at all of it in a moment. Let’s first look at last week’s economic announcements and preview what’s coming this week.

Economic Data Analysis

Last week was a light one in terms of economic numbers, but we got a big batch of important data. That’s last month’s inflation figures. It continues peel back from last year’s frothy levels. But, it’s still relatively high overall. And, curiously, overall price increases actually accelerated a little in July.

Inflation Rate (Annualized) Charts

Source: Bureau of Labor Statistics, TradeStation

The trend is moving in the right direction; the interest rate hikes appear to be working. There’s room and arguably reason for rates to continue being worked higher.

Everything else is on the grid.

Economic Calendar

Source: Briefing.com

This week will be busier, starting in earnest with Tuesday’s look at last month’s retail spending. Economists are looking for a decent acceleration of June’s growth. We could use that right about now following this year’s fairly stagnant retail spending.

Retail Sales Charts

Source: Bureau of Labor Statistics, TradeStation

On Wednesday we’ll hear July’s capacity utilization and industrial production data from the Federal Reserve. Look for a modest bounce back from June’s depressed numbers, although a sweeping reversal of what’s becoming a more serious downtrend isn’t likely.

Capacity Utilization, Industrial Productivity Charts

Source: Federal Reserve, TradeStation

These downtrends can coincide with and precede market weakness.

Last but not least, look for last month’s housing starts and building permits on Thursday. Analysts are calling for very slight progress from June’s data. And, that’s needed. Both fell pretty dramatically in the prior month, possibly rekindling the downtrend that’s been underway for both since early 2022.

Housing Starts and Building Permits Charts

Source: Bureau of Labor Statistics, TradeStation

For the record, mortgage interest rates hit a two-decade high. While this doesn’t directly work against home construction, indirectly, it can.

Stock Market Index Analysis

This week starts out with a close look at the daily chart of the Nasdaq Composite. As you can see, the index broke below its 50-day moving average line (purple). That’s the first time the Nasdaq has been under the 50-day line since March. Although the volume behind Friday’s loss wasn’t especially high, but the selling volume that got the composite to this breaking point has been above average for the past couple of weeks.

Nasdaq Composite Daily Chart, with VXN

Source: TradeNavigator

As you can see on the weekly chart of the Nasdaq Composite, the volume behind the whole bearish week was above the recent average. The weekly chart also shows us just how far the Nasdaq soared since March. There’s lot of profit-taking potential on the table here.

Nasdaq Composite Weekly Chart, with VXN and Volume

Source: TradeNavigator

The S&P 500 didn’t break under its 50-day moving average line (purple) at 4438. But, it got close. One more bearish day could do the trick.

S&P 500 Daily Chart, with VIX and Volume

Source: TradeNavigator

The weekly chart of the S&P 500 adds some perspective on the past couple of weeks’ worth of witness. Like the Nasdaq Composite, the S&P 500 was overbought and ripe for a pullback heading into August. This chart serves up another noteworthy element though. That’s the straight-line technical ceiling (light blue, dashed) that connects all the key peaks from December of last year. Clearly there’s something about this resistance that can’t be simply ignored. Either way, the S&P 500 is working on a bearish pivot out of an uptrend and into a correction effort.

S&P 500 Weekly Chart, with VIX and Volume

Source: TradeNavigator

So what’s next? Good question.

The market’s current direction is a bearish one, so we must respect that. Except, the S&P 500 isn’t too far gone just yet. Only the Nasdaq is. Problem? The Nasdaq leads the rest of the market, for better or for worse. Also note that neither of the volatility indices continued the uptrend they tried to start two weeks back. They’ll both need to move higher in step with a falling market to really get the downtrend going in earnest. The S&P 500 also needs to break below its 50-day moving average line before there’s reason to think lower lows are in store.

So, the smart-money move to make right now is doing nothing but waiting to see how this shakes out. The good news is, we should get our answer pretty early this week. We’re leaning towards a bearish bet, particularly given the time of year.

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