Weekly Market Outlook – Technical Resistance Remains in the Way

Stocks managed to log another win last week… albeit just barely. And not all of them. Whereas the S&P 500 mustered a 0.6% gain during the holiday-interrupted stretch, the NASDAQ suffered the tiniest of weekly losses. Traders were moving to safer names, however. The Dow Jones Industrial Average was up 1.45% for the week. Unlike either other index though, the Dow didn’t make a new record high en route to the weekly gain.

Whatever the case, the lethargy comes as no real surprise. Not only are stocks simply overextended right now, in most cases we’re still dealing with significant technical resistance that stands in the bulls’ way.

We’ll show you what those technical ceilings look like -- again -- below. First though, let’s recap last week’s top economic announcements and preview what’s coming this week.

Economic Data Analysis

It was a busy week in terms of economic news. But, not a particularly encouraging one. With the exception of Tuesday’s capacity utilization and industrial production data from the Federal Reserve (which wasn’t great), most of the numbers are more troubling than bullish.

As for production and utilization of that production capacity, output grew 0.9% while capacity utilization inched a little higher to 78.7%. Both steps forward extend rebound efforts that took hold in February. But, these turnarounds aren’t exactly convincing just yet.

Industrial Production and Capacity Utilization Charts

Source: Federal Reserve, TradeStation

Making these bullish reversals at least a little less bullish are the rest of the numbers we heard last week. Take May’s retail sales as an example, also posted on Tuesday. All stratifications of this data were disappointing, and in some instances turned outright negative. As the graphic below shows, consumer spending has basically been stagnant since the latter part of last year. That’s a lot of weakness to last this long without spooking the market.

Retail Sales Charts

Source: Census Bureau, TradeStation

It was also another tough for real estate, and the housing market in particular. Although home prices continue to inch higher -- even accelerating higher -- we’re selling far fewer of them. The National Association of Realtors reports the annualized pace of sales of existing homes rolled in at 4.11 million in May. That’s a little better than expected, and up from last year’s lull. But, it’s still a relatively low number.

New, Existing Home Sales Charts

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

May’s new-home sales report will be posted this week. Economists are calling for a slight improvement on April’s lowered figures, but like its existing-home sales counterpart, there’s more not to like than like about the bigger picture.

And it’s not like the nation’s looking to suddenly start building more new homes (despite a message to the contrary from homebuilders). Housing starts and building permits both slipped in May, accelerating already-alarming downtrends. In both cases we’re near the multi-year low levels see during the early days of the pandemic, when nothing was happening.

Housing Starts, Building Permits Charts

Source: Federal Reserve, TradeStation

Everything else is on the grid.

Economic Calendar

Source: Briefing.com

Aside from new-home sales on Wednesday, we’ll be rounding out the real estate picture on Tuesday with April’s home pricing numbers from Case-Shiller and the FHFA. Jibing with last week’s report from the National Association of Realtors, both of these data sets are rising, and even accelerating. Just bear in mind that these numbers only reflect home that sell. Higher-end homes are still transacting pretty briskly. There just aren’t as many of these houses to buy or sell.

Home Price Charts

Source: FHFA, Standard & Poor’s, TradeStation

This is also an important week for sentiment measures. The Conference Board’s consumer confidence score will be posted on Tuesday, followed the third and final update of June’s consumer sentiment reading. Forecasters are calling for lower numbers for both, extending the bigger-picture downtrends already in place. As is the case with retail sales, it’s a bit surprising the market’s managed to continue moving higher when consumer confidence when its participants are entertaining more and more doubt about the foreseeable future.

Consumer Sentiment Charts

Source: Conference Board, University of Michigan, TradeStation

Also on Friday we’ll get May’s consumer spending and personal income numbers from May. This is noteworthy information if only because this is the data the Federal Reserve considers first and foremost when making decisions regarding interest rates. It’s unlikely we’ll see enough of a surprise on this front to change the Fed’s expectation that only one more rate cut is necessary (later) this year. But, you never really know.

Stock Market Index Analysis

In retrospect, it’s not terribly surprising stocks struggled last week.

Yes, the S&P 500 as well as the Dow Jones Industrial Average logged gains last week (although the NASDAQ lost a little ground). All of the indices peeled back from Thursday’s peak, however, for a clear reason. Take a look at the weekly chart of the S&P 500 below to see why. The index bumped into the technical ceiling (red, dashed) connecting all the key highs going back to early-2023… as we discussed last week. This resistance line was just confirmed as a not-insignificant problem.

S&P 500 Weekly Chart, with VIX and MACD

Source: TradeNavigator

Here’s the daily chart of the S&P 500 for some additional detail. From here we can see how it all went down on Thursday. Thursday’s strong open only had to kiss that technical ceiling to jump-start some selling.

S&P 500 Daily Chart, with VIX and Volume

Source: TradeNavigator

And that’s a concern in and of itself… the ease with which the bullish advance reversed course. The sellers didn’t exactly plow in, but the rally’s fragility was exposed. The failure to break above the long-term resistance level also trained traders to not expect the market to be able to break above it, which means they’re less encouraged to make it happen going forward.

Here’s the weekly chart of the NASDAQ Composite, which tells the same basic story. That is, the index is struggling now that it’s bumping into a well-defined and well-established resistance line (red, dashed). Like the S&P 500, the NASDAQ’s MACD lines are now showing a bullish divergence. But, this bullish clue follows a sizeable, lengthy runup from the index’s late-2022 low.

NASDAQ Composite Weekly Chart, with MACD and Volume

Source: TradeNavigator

Here’s the daily chart of the NASDAQ, plotted with a slightly different technical resistance line (dashed, purple) that connects another, slightly-different collection of recent peaks. The composite is clearly above this ceiling. But, even so, the NASDAQ is struggling to continue moving higher.

NASDAQ Composite Daily Chart, with VXN and Volume

Source: TradeNavigator

The prior week’s bullish gap (highlighted in blue) isn’t helping any either -- the market tends to not let gaps remain unfilled. Whatever the case, the index is clearly well overextended and saw a couple days’ worth of lower lows and lower highs in the latter part of last week.

Bottom line? It’s going to take a lot to tack on more gains from here. The volatility indices have been hovering at oddly-low levels for a little too long as well, underscoring the doubt that there’s a whole lot more room for more immediate upside. Just don’t trade in anticipation of a pullback. There’s still lots of technical support below the all the indices’ current levels.