Despite Friday’s bounce from Thursday’s sizeable stumble, for the first time in five weeks the S&P 500 (SPX) lost ground… although only the S&P 500. The Nasdaq Composite mustered its fifth-straight weekly win, reaching new record levels as a result. 

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The S&P 500 itself also hit a new record even though it lost ground for the week. The interpretation isn’t complicated -- the momentum is bullish. It’s just anything but ideal.

We’ll explain why this is less-than-ideal bullishness below. First though, let’s run through last week’s economic data that confused investors so much. Bad news has been good of late since it suggested the Federal Reserve would be more inclined than not to lower interest rates. Now, investors aren’t so sure the Fed is looking for any excuse to lower rates ASAP. This rattled the market.

Economic Data Analysis

There wasn’t much interesting data released last week, but it was a pretty big one for real estate. We heard April’s new and existing home sales. Problem? Both fell… a lot. Sales of existing homes slipped from a pace of 4.22 million to 4.14 million, while new-home sales tumbled from an annualized pace of 665,000 to a multi-month low of 634,000.

New, Existing Home Sales Charts

Source: National Assn. of Realtors, Census Bureau, TradeStation

Take these numbers at face value; the real estate market is starting to crumble. Not shown on the chart above is the fact that inventory levels of homes for sale reached a multi-year high of 121,000 units. Also as a reminder, home prices have been a little wobbly of late despite the fact that mortgage rates are leveling off, end even peeling back a bit.

The only other item of interest from last week is the third and final look at the University of Michigan’s sentiment score for May. It ended up ticking a little higher from the previous estimate, but at 69.1 (not shown on our chart below… yet) is still well below recent readings.

Consumer Sentiment Charts

Source: University of Michigan, Conference Board, TradeStation

The Conference Board’s one-and-only measure for May will be posted on Tuesday of this week. Economists are calling for a slight dip from April’s reading of 97. Like the University of Michigan’s data, it’s showing deteriorating optimism. Inflation, slowing job growth, and high interest rates are grinding consumers down.

Everything else is on the grid.

Economic Calendar

Source: Briefing.com

In addition to the Conference Board’s sentiment measure, also on Tuesday we’ll get March’s home price numbers from the FHFA as well as the Case-Shiller Index from Standard & Poor’s.  Forecasters say home values likely continued to grow at February’s re-accelerated pace. Just bear in mind this week’s numbers are for March. Much has changed in the meantime.

Home Price Charts

Source: Standard & Poor’s, FHFA, TradeStation

Although we’re not previewing charts of any of this data, know that we’ll be hearing the first revision (second estimate) of Q1’s GDP growth rate on Thursday, while last month’s personal income and expenditures for April will be posted on Friday.

Both have implications for interest rates. Specifically, they’re both expected to be encouraging of rate cuts. The first quarter’s GDP growth pace was already disappointing at 1.6%, but that figure’s expected to be dialed back to only 1.2%. Income growth is also apt to slow from 0.5% to 0.3%, whereas April’s spending growth is projected to slow from 0.8% in March to 0.4% for last month. It’s not a game-changing slowdown, but it’s a measurable shift.

Stock Market Index Analysis

We start things this week with a look at the weekly chart of the Nasdaq Composite, just to show you that -- despite Thursday’s stumble -- it logged its fight-straight weekly gain, hitting a new record high in the process. From a momentum perspective, this is patently bullish.

Nasdaq Composite Weekly Chart, with MACD and Volume

Source: TradeNavigator

There are some concerns, however.

Chief among these concerns is the ease with which Thursday’s tumble took shape, and its placement. The composite opened at a record high (and above Wednesday’s high) only to slide back under (and close below) Wednesday’s low. This so-called “outside day” is telling simply because it shows such a sudden and extreme change of heart. It’s a sign that the rally may be quite fragile.

Nasdaq Composite Daily Chart, with VXN and Volume

Source: TradeNavigator

It ended up not mattering. The bulls were back to work the very next day (Friday), halting Thursday’s selling quite firmly.

Still, the bears showed their proverbial cards. As the Nasdaq’s daily chart also shows is, last week’s big selling day – Wednesday and Thursday – were high volume days, whereas the other three days of the well were all bullish, but also on lower, weakening volume. This rally (as intact as it still may be) doesn’t have a ton of participation behind it.

And the S&P 500’s chart is showing this weakness in a different way. Unlike the Nasdaq Composite, it didn’t make any real progress last week, eking out a breakeven instead after just touching a new record high. Nevertheless, it was already stalling near the end of the previous week, and it too suffered the bearish outside day the Nasdaq did on Thursday. The bulls were able to stop the bleeding on Friday, but never really tested the recent ceiling near 5315 (white, dashed). Also like the Nasdaq Composite, the S&P 500’s losing days last week were on higher volume than it’s winning days. Once again we can see a lack of support or participation in the broader bullish effort.

S&P 500 Daily Chart, with VIX and Volume

Source: TradeNavigator

Here’s the weekly chart, just for some additional perspective.

S&P 500 Weekly Chart, with VIX and MACD

Source: TradeNavigator

The momentum is still net bullish, so we are as well. There’s also an argument to be made that traders are swapping out S&P 500 stocks for tech-heavy Nasdaq stocks, which is bullish in and of itself. That’s the call… to the extent one must be made. This isn’t a super-great effort though. The market’s still overbought and feeling the weight of its gains made since October’s low. A more serious correction is still in the cards sooner or later. Just not right now -- at least not yet.

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