After technically oversold conditions and news out Europe provided stocks with a boost Monday, it’ll be up to domestic data to keep the bullish momentum going. With the S&P500 up over 4% from its low last week (1,114) the markets are no longer oversold, and SPX is dealing with resistance from a bearish gap down whose base resides at the 1,166 level. That is why the bulls will likely need at least 2 of the 3 major domestic reports out to show positive signs about the economy.
The S&P/Case-Shiller home price index for July, the Conference Board’s gauge of consumer confidence for September, and the Richmond Fed manufacturing index are all slated to hit the street Tuesday. Given that recent housing has continued to be weak, and most everyone expects it to remain so, we feel that the home price index is the least concerning for the markets. Instead, the markets are likely to focus more on the consumer confidence and manufacturing data. With the markets approaching resistance, a combination of two poor reports could be the excuse the markets need to turn lower from here.
We’ll be watching the action in the VIX for clues as to whether the market is likely to push higher or resume its downtrend lower. On Monday, the VIX started to fill a bullish gap up from last week between 37.32-39.33, closing at 39.02. We’ll be watching to see if it finds support around that 37.32 level as a potential leading indicator that the market is on the verge of heading lower. If it breaks down below that level and extends below 37, it could be an early sign that the markets have higher to go in the near term.
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