We have to give credit where it's due – if last week's rally is just another fakeout, it's the most convincing fakeout we've seen in months.  We at least owe it to ourselves to consider the possibility we could be headed into a rare springtime rally.

We'll show you exactly what the market did right in a moment.  Let's first dissect last week's economic data…. what little there was of it.

Economic Calendar

We weren't kidding when we said last week's economic data dance card was minimal.  In fact, the only items of any real interest last week came on the housing front. 

The party got started on Wednesday with the MBA Mortgage Index for the prior week.  It was up 0.9%, following the 3.6% uptick for the week before that one.  The fireworks didn't start in earnest, however, until Thursday when we heard last month's existing home sales.  They didn't skyrocket higher; the pace only grew from 4.59 million units per year to 4.65 million.  It was a much needed glimmer of hope for the struggling real estate market though. 

The rebound carried through to Thursday when we got April's new home sales total.  They were up nicely, from 407,000 homes per year to 433,000. 

Economic Calendar

Source:  Briefing.com

The coming week will be much busier in terms of economic numbers, kicking off on Tuesday with the modestly-important durable orders figure for April.  The pros are expecting a slump, with or without transportation numbers factored in.  It shouldn't be a good start to the shortened trading week, especially given how strained the rally was becoming at the end of last week.

We'll also get the last batch of April's housing data on Tuesday.  The Case-Shiller Index (of home prices) will be unveiled then, and the FHFA Housing Price Index will be announced that day too; both are for March – NOT April.  The former is supposed to be up 11.8% on a year-over-year basis, but there's no outlook for the latter yet.  If the other real estate numbers we've seen lately are any indication though, we should see at least a small perk-up in real estate prices here. 

Real Estate Trends Chart

Source:  Census Bureau, FHFA, National Association of Realtors, and Standard & Poors

It's too soon to say we're out of the woods yet on the real estate front, but we're seeing minor reasons for hope. 

It's also going to be a busy week for consumer sentiment measures.  We'll hear April's consumer confidence score from the Conference Board on Tuesday, and we'll get the final Michigan Sentiment score for May on Friday.  The former is expected to edge a little higher, from 82.3 to 82.7, while the latter is expected to roll in at a final score of 81.4 for May, up from April's final reading of 84.10.

Consumer Sentiment Chart, as of April

Source:  Reuters and Conference Board

A small dip from either consumer confidence measure wouldn't alter the bigger uptrend from either, though a small (or large) uptick would obviously be preferable.

Stock Market Index Analysis

Finally!  After more than two months of little more than sideways movement, the S&P 500 (SPX) (SPY) finally closed above a major line in the sand at 1885 and 1897.  The bad news is, Friday's close right at 1900 was suspiciously right in line with a big round number… and levels ending in big round numbers tend to act as key reversal points.  And, given just how reversal prone stocks have been since March anyway, it wouldn't be surprising to see the market turn tail and pull back here just when it looks like the S&P 500 had wiggled its way out of a rut. 

S&P 500 & VIX – Daily Chart

All charts created with TradeStation.

On the other hand, we'll concede that this particular breakout effort has an advantage the other prior two surges didn't... it's starting the effort with lots of support at the 20-day (blue) and the 50-day (purple) moving average lines, and it's starting the effort without the disadvantage of being overbought.

It's not all sunshine and roses for the market here, however – there are still some problems we could encounter soon.  One of those potential pitfalls is an amazingly-low CBOE Volatility Index (VIX) (VXX).  The other problem with the rally to date is that it's unfurled on very low volume.  That being said, while the weak volume suggests the rally is running on borrowed time, it's possible for the market to inch higher while the VIX remains at very suppressed levels.  It's just usually not a very strong rally, and is often characterized by choppy, inefficient action from one day to the next.

The weekly chart of the S&P 500 offers a little more perspective on the whole shebang, though doesn't actually tell us anything new.  It's in this timeframe we can see just how low the VIX is here, though again, the market can keep the VIX at low levels for weeks on end while rallying – tepidly – the whole time. 

S&P 500 & VIX – Weekly Chart

That said, although subtle, there's a red flag waving on the weekly chart of the S&P 500.  See the rising, dashed support line and the 100-day (gray) moving average line? If you look closely, the 100-day line has fallen below that straight-line support, telling us the bigger-picture momentum has been deteriorating for a while.  That may or may not be a problem yet.  If last week's renewed bullishness (the S&P 500 gained 1.15% last week, which was the best gain in five weeks) is for real, then the recent lull is a buying opportunity into a longer-term uptrend.  If the rally peters out before it even gets going, however, it wouldn't take much of a pullback for the market to move below the point of no return.  In our estimate, a tumble under 1850 could jump-start a pullback that wouldn't see the bulls put up much of a fight to halt it. 

Almost needless to say, this week is a pivotal week for stocks.  The bulls already took a very good shot, and may well have jolted the market back into an uptrend. 

That being said, even a small dip back to the support levels around 1885 and then a renewal of the rally would be the ideal thing to happen for the bulls here.  If the rally should bolt right out of the gate on Tuesday, it may simply be an invitation for a big wave of profit-taking that could pull the S&P 500 back under the critical 1850 level . It's all about the pacing and balance as we transition from spring to summer, when volume is thin and disinterest is high.  For what it's worth though, right now, the market is still mostly range-bound.

Trade Well.