I have been a huge fan of Price Headley for years. He and his team at BigTrends.com do an amazing job of spotting key setups and then helping you see it in the simplest of ways. He offered to share some of the insight he provides his readers with Market Wealth Daily, so please check this out.

From Price Headley at BigTrends,com,

The market didn’t end last week on a particularly high note. It just doesn’t matter. Stocks were ripping higher the rest of the week, carrying the S&P 500 to a 2.4% gain for the five-day stretch. The market’s now as high as it’s been since April of last year, when it was on its way down to begin what would become a full-blown bear market.

The same worries from three, four, and five weeks ago still apply. That is, the sheer scope and speed of the rally from March’s low leaves the market vulnerable to some profit-taking. It’s also worth noting the volume behind last week’s advance is generally lacking, suggesting this bullishness may not reflect the majority opinion.

The trend is still the trend though.

We’ll look at the whole shebang in some detail in a moment. Let’s first run through last week’s biggest economic reports and preview what’s coming this week.

Economic Data Analysis

There was only one set of data released last week that we really care about, but it was a whopper. That’s June’s inflation report. In short, it’s being tamed. The overall consumer inflation rate now stands at a two-year low of 3.0%, although taking food and fuel out of the equation leaves it at a still-high 4.8%. As for producers (factories, processors, assemblers), their input costs were essentially even with year-ago levels last month, and only up 2.6% not counting fuel and food costs.

Inflation Rate (Annualized) Charts

Source: Bureau of Labor Statistics, TradeStation

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Inflation is clearly cooling. Nevertheless, the Federal Reserve still seems to be leaning in a hawkish direction, holding on to its suggestion that a couple more rate hikes remain in the cards for this year. It’s likely the Fed just wants to make sure the inflation beast is truly tamed. Only time will tell if the Fed’s governors are going to do more harm than good.

Everything else is on the grid.

Economic Calendar

Source: Briefing.com

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This week’s a big one for real estate. On Wednesday we’ll hear about June’s housing starts and building permits, with existing home sales in June coming on Thursday. The pros are looking for about the same number of permits we saw in May, but notably, they’re calling for a sharp decline in the starts surge we saw two months back.

Housing Starts and Building Permits Charts

Source: Census Bureau, TradeStation

Sales of existing homes should roll in around May’s levels as well.

New, Existing Home Sales Charts

Source: Census Bureau, National Association of Realtors TradeStation

New home sales figures won’t be posted until next week.

Real estate isn’t the only type of data in the lineup this week though. On Tuesday we’ll hear about June’s utilization of the nation’s factory capacity, and how much stuff our industries is actually cranking out. Both measures have been less than thrilling of late. Economists don’t believe much has changed in the meantime.

Capacity Utilization and Industrial Productivity Charts

Source: Federal Reserve, TradeStation

Perhaps the most-watched data due this week, however, will be Tuesday’s report on last month’s retail sales.

Retail Sales Charts

Stock Market Index Analysis

We kick things off this week with a look at the weekly chart of the NASDAQ Composite, since that’s where the most important thing happened last week. As you can see, the composite broke past its Fibonacci retracement line — a ceiling — at 13922. With that thrust, there’s not any technical ceiling to thwart the rally.

NASDAQ Composite Weekly Chart, with VXN

Source: TradeNavigator

That doesn’t leave the index devoid of risk here. As has been the case for a few weeks now, it’s still just plain overbought; the composite’s up 38.2% from its early January low. That’s a lot of profit-taking potential. The NASDAQ Volatility Index (VXN) also remains unusually low, leaving it plenty of room to rise. (The VXN generally moves in the opposite direction as the market itself.)

The weekly chart of the S&P 500 looks similar, having punched through a recently-made ceiling at 4464. Like the NASDAQ, now there are no major technical ceilings ahead. The only potential tripwire here is the distance the index has traveled in just the past few months. It’s up 18% from March’s low, and arguably overextended. And, the S&P 500’s volatility index is also near/at an absolute floor around 12.0.

S&P 500 Weekly Chart, with VIX

Source: TradeNavigator

Here’s the daily chart of the NASDAQ Composite. You can see this week that the composite was ultimately able to push up and off of its 20-day moving average line (blue) last week after finding support there a couple of times within the past month. You can also see, however, just how much divergence there is between the NASDAQ and all of its moving average lines right now. The index is ripe for being reeled in.

NASDAQ Composite Daily Chart, with VXN

Source: TradeNavigator

Here’s the daily chart of the S&P 500. The same basic idea applies here. That is, the index pushed up and off of the 20-day moving average line (yellow) early last week, but as a result is now overextended. As of Friday’s close the index is nearly 12% above its 200-day moving average line (green). It’s been further away than that in the past. However, that’s a rarity. As was the case with the NASDAQ, this degree of divergence is beckoning the S&P 500 back — at least a little bit — to dial back some of its overbought condition.

S&P 500 Daily Chart, with VIX

Source: TradeNavigator

With all of that being said, right now we’re actually mostly looking at the Dow Jones Industrial Average for guidance as to what’s next for stocks. And, there’s reason to prepare for bullishness. The Dow is knocking on the door of horizontal resistance at 34,603, which is the last of the ceilings standing in the index’s way. As you can see, the blue chip index is already back above all of its other resistance lines including the upper edge of the converging wedge pattern that’s been formed since the middle of last year.

Dow Jones Industrial Average Daily Chart

Source: TradeNavigator

The trend is bullish, so we are as well. If the Dow plays along as expected, we’ll be even more bullish. Nevertheless, there’s no denying a bit of a cooling-off pullback would actually be the best thing for the market in the long run. Look for the nearer-term moving average lines to act as a floor if a swoon is in the cards.

Price Headley,