We knew the party had to end sometime. Last week was it. For the first time since mid-May the market logged a weekly loss, and last week's setback was the biggest weekly loss since March. And there may well be more downside in store.

Freepik

Before sweating the prospect too much though, know that there's still lots of room for stocks to slide without actually snapping the bigger-picture uptrend.

We'll take a look at how and why in a moment. First, let's run through last week's most important economic news and preview what's coming this week.

Economic Data Analysis

This week kicks off a wave of real estate reports, starting on Tuesday with a look at last month's housing starts and building permits. Permits were up a little to a pace of 1.49 million, but starts for some reason just exploded. After the downward revision to 1.34 million for April, May's housing starts jumped to a 13-month high of 1.63 million.

Housing Starts, Building Permits Charts

Source: Census Bureau, TradeStation

An unsustainable fluke? Maybe. But, you should also know that homebuilder sentiment (not shown) hit a 10-month high last month, and improved again for this month. That's not a metric. That's an opinion poll. If homebuilders are feeling optimistic though, there's a reason. The surge in starts confirms what builders seem to be sending about their foreseeable future.

The only other item of interest dished out last week was another dose of real estate data... last month's sales of existing homes. The clip of 4.3 million is in line with April's number, and still relatively low.

Home Sales Charts

Source: National Board of Realtors, Census Bureau, TradeStation

May's new home sales figure will be posted on Tuesday of this week. Forecasters are actually calling for a slight retreat from April's annualized reading of 683,000. However, April's number was measurably up. While you'd expect starts and homebuilder confidence to coincide with higher sales of new houses, it takes time build them. It could be a couple of months before actual sales catch up with starts and homebuilder sentiment.

Of course, if we do happen to see a strong sales figure, so much the better.

Everything else is on the grid.

Economic Calendar

Source: Briefing.com

In addition to new home sales numbers this week, we'll round out the real estate snapshot with a report on home prices. Although they're a month behind all the other data, the Case-Shiller Index as well as the FHFA's Housing Price Index will both be posted on Tuesday. Each is likely to roll in lower on a year over year basis, but as our chart shows, prices have been firming up again since early this year.

Home Price Charts

Source: FHFA, Standard & Poor's, TradeStation

It's also a big week for consumer sentiment numbers. The Conference Board's consumer confidence report will be posted on Tuesday, followed by June's third and final look at the University of Michigan Sentiment Index on Friday. Although both should be up slightly for the month, it's curious that both are also still in bigger-picture downtrends since mid-2021.

Consumer Sentiment Charts

Source: University of Michigan, Conference Board, TradeStation

And by "curious," we mean there's something missing behind the market's rally.

Stock Market Index Analysis

We start this week with a close-up look at the daily chart of the S&P 500. This one best puts the 1.4% pullback in perspective. While it was clearly a move in the wrong direction, the pullback didn't even come close to fracturing the bullish effort. (In other words, don't sweat the selling just yet, even though there may be more of it in store.)

S&P 500 Daily Chart, with VIX

Source: TradeNavigator

As for where the S&P 500's current selloff might find a floor, there are several prospective possibilities. One of them is the 20-day moving average line (blue) currently at 4302, which is also where you'll find a key Fibonacci retracement line; more on that in a moment. Another floor to watch lies at 4175, where the S&P 500 bumped into resistance early in the year, and where the 100-day moving average line (gray) will soon be found. There's even support near 3993, where the 200-day line (green) currently rests along with another Fibonacci retracement line.

On that note, here's the weekly chart of the S&P 500 with the same aforementioned Fibonacci lines already plotted. The weekly chart mostly, however, reminds us that the market's rally since October -- and really, since March's low -- is unusually big and was strangely uninterrupted. Some pushback could have been expected here.

S&P 500 Weekly Chart, with VIX

Source: TradeNavigator

The weekly chart shows us something else too...  volatility index that's still far "too low."

It's been a point of contention for a while now. While the so-called fear gauge isn't directly linked to the market's value or its momentum (or lack thereof), it does strongly correlate with the market's ebbs and flows. When it's falling, stocks are usually rising. When it's rising, stocks are usually falling. That's why the VIX's ultra-low levels are a major concern at this time. While the market's not yet in a full-blown retreat, the lack of fear we're seeing right now is the condition we often see right before a major correction.

And the NASDAQ's volatility index (VXN) is in the same condition. That is, it's as low as it's been since 2021. Unlike the VIX, however, the VXN seems to be finding a floor right around 18. That's telling. It loosely suggests traders aren't becoming more bullish. It could even be interpreted as a sign that they're ready to shift to a bearish way of thinking.

NASDAQ Composite Weekly Chart, with VXN

Source: TradeNavigator

While it's difficult to see, also know that last week's bar was an inside bar, where the high was below the previous week's (bullish) close, and the low was above the previous week's (again, bullish) open. It's just pointed in the opposite, bearish direction. These inside-days often portend a reversal, and in this case there's little doubt the market's vulnerable.

Just don't be too quick to jump to a bearish conclusion. The VIX and VXN have been "too low" for a while now, and it hasn't been a problem yet. And, in addition to all the technical floors that could stop the S&P 500 from selling off before it even got started, note how the Dow Jones Industrial Average seems to already be finding support at its now-converged 20-day (blue) and 50-day (purple) moving average lines. Its breakout thrust is still well intact, and its converging wedge is still providing more bullish support than not.

Dow Jones Industrial Average Daily Chart

Source: TradeNavigator

Bottom line?

This is a time where the best/smartest seat is on the sidelines, watching all of this play out. Mixed messages are nothing new. What so unusual about the current situation is how strong both the bullish and the bearish cases both are.

More By This Author: