The market was battered by a number of different headwinds this past week. Oil, Libya, Saudi protests, and Japan all had an influence on stock prices. Thankfully oil prices retreated from their recent highs and yet gasoline prices here in the U.S. continued to creep higher, adding another nickel. Another positive was the day of rage protests in Saudi Arabia failed to materialize, which eased worries that the Middle East contagion would spread to the world's pivotal oil producer. Elsewhere protests continued in Bahrain and Yemen but investors overlooked these headlines. The civil war in Libya continues to burn. The U.S. and U.N. are considering a no-fly zone over Libya to prevent Kaddafi's forces from using the air. They'd better decide quickly seems recent headlines seem to show him making progress against the rebels. Investors were not completely immune to all of the volatility and fear. The VIX index inched higher and demand for last week's U.S. debt auctions of 10 and 30-year notes was very strong.

Last week the economic data was mixed. The initial jobless claims came in a little higher than expected but remained under the 400,000 mark. Another disappointment was the trade data. Strong U.S. exports was completely overshadowed by the surge in our deficit thanks again to high oil prices. One of the biggest disappointments was Friday's University of Michigan consumer sentiment survey. It was expected to drop from 77.5 in February to 76.5 in March. Instead the sentiment index plunged to 68.2. This was the lowest reading since October 2010 and Friday's report was the eighth largest drop since 1978. Consumer's attitudes are definitely being affected by surging gasoline prices and all the negative headlines in the news.

One of the biggest stories last week was Europe. Worries over Europe's debt crisis started to return and yields on debt for the PIIGS countries continued to climb, suggesting a lack of confidence in the EU's ability to handle this situation. Moody's downgraded Spain's credit rating and put them on outlook negative, which only highlighted the problem in Europe. However, there might be some good, if temporary, news on this issue. EU leaders met this weekend and agreed to offer more aid to their struggling members. Not only was the EU raising the amount of bailout money available but they were adjusting some of the terms. The loans to Greece were increased to 7.5 years from three years and the interest charged on these loans was lowered.

Technically the markets look pretty ugly. Thursday's drop inflicted a lot of damage to the charts. Yet we ended the week with the major averages clinging to support and possibly poised to bounce. On the S&P 500 the 1300 mark is psychological support but the intraday lows to watch are near the 1294 level. The S&P 500 did violate this low on Friday morning but rebounded. Friday's move could be nothing more than an oversold bounce so I would be very cautious this week.

If the S&P 500 does correct lower we can look for support near 1275. Personally I don't think it would hold that level. It might bounce at 1275 but I would expect a drop toward 1260-1250. A normal 38.2% Fibonacci retracement of the August-February rally would mean a pull back toward the 1227-1225 area, essentially back toward the prior resistance levels. Quite honestly a pull back to these levels might be healthy.

Daily chart of the S&P 500 index:

Weekly chart of the S&P 500 index:

The NASDAQ Composite looks pretty ugly with the gap down on Thursday. The index violated the 2700 level on Friday morning before bouncing. Now its prior trend of higher lows and the 50-dma are overhead resistance. The NASDAQ-100 index (NDX) doesn't look any better. If we see the bounce in these indices fail near the 50-dma it could be a signal to sell. Looking at the composite, the 100-dma might offer some support but I wouldn't be surprised to see a correction toward the 2600 level.

Daily chart of the NASDAQ Composite index:

One of the worst developments last week was the sell-off in semiconductor stocks. Semis tend to lead the NASDAQ higher or lower and last week they accelerated lower. I warned readers when they broke their bullish channel in February. Now the SOX index has fallen toward support near 420 and its 100-dma. The group could see a bounce here but the path of least resistance is probably down.

Daily chart of the SOX semiconductor index:

The small cap index has also broken down from its bullish channel. I couldn't get a chart for the Russell 2000 index so I'm looking at the IWM ETF for the Russell 2000. You can see how the small cap index has broken support at its trend of higher lows and its 50-dma. It managed a bounce at its late February lows but the index appears poised for more declines. This doesn't bode well for the stock market and is another reason I might hesitate to launch new bullish trades.

Daily chart of the IWM Russell 2000 ETF:

Looking ahead we have another busy week of economic news and they're all concentrated into Tuesday, Wednesday and Thursday. The highlights of the week will probably be the New York Empire manufacturing survey for March, the import/export prices for February, the housing starts and building permits, the PPI for February, CPI for February, the Philly Fed survey and the initial jobless claims. The biggest event for the week on our economic calendar is the FOMC meeting on Tuesday, March 15th. Stocks just might churn sideways until we get to the Fed decision on Tuesday afternoon so investors can hear the latest statement before placing any new bets in the market.

Now that the "day of rage" protests for Saudi has passed by uneventfully the market might ignore, at least temporarily, the violence and unrest across North Africa and the Middle East. Now add the EU's decision this weekend to offer more support for their struggling members and that removes another worry for the market. The tragedy in Japan is definitely an issue. The country is struggling with thousands dead, even more still missing, and several nuclear energy plants at risk for a meltdown. Unless one of these nuke plants does see a full scale meltdown the impact of Japan on the U.S. markets might be muted. The earthquake-tsunami event failed to have much of an effect on Friday so I don't see why Japan would be an issue this week. In essence we have bearish technicals and trading action for the major averages yet many of the recent worries appear to be fading.

The question is will stocks finally lose their grip on the wall of worry and continue to slide lower? Or will investors concentrate on the trend of positive economic data in the U.S. and buy the dip?

- James