It had to happen sooner or later. Stocks finally saw some profit taking. The S&P 500 briefly tagged a four-year high early last week before pulling back. Even with the bounce on Friday the market ended a six-week winning streak. Helping fuel the rebound on Friday was news or should we say rumors that the European Central Bank (ECB) is considering a target range or band for yields in its proposed bond-buying program. Another headlines on Friday was news that Apple Inc. (AAPL) won its patent infringement suit against rival Samsung with the jury ordering a $1 billion reward to Apple. Speaking of Apple, the stock hit a new all-time high, almost hitting $675 a share, pushing the company's market cap to over $620 billion, make it the most valuable company on the planet.

It was a relatively quiet week for economic data. The existing home sales report for July came in at a 4.47 million unit pace, which was less than the 4.55 million annual pace expected. The weekly initial jobless claims rose from 368,000 to 372,000. The durable goods report for July saw its headline number rise +4.2%, which is a nice increase over June's +1.6% and above estimates of +2.4%. However, if you exclude the more volatile transportation component's +14.1% gain then the durable goods report showed a -0.4% decline.

Major Indices:

The S&P 500 lost -0.5% for the week. The index surpassed the old 2012 high of 1422 with a spike to 1426 on Tuesday. The gains didn't last with stocks reversing midday. The mid-week pullback saw the S&P 500 dip to round-number psychological support at the 1400 level on Thursday and Friday before bouncing on Friday morning.

The intermediate trend is still up but the S&P 500 could easily see another week or two of mild declines and still maintain the up trend. Of course stocks might just churn sideways as investors wait for the Federal Reserve Chairman's speech on Friday and the ECB President's speech on Saturday.

If the S&P 500 breaks down under 1400 the next level to watch is 1380 or potential support at the rising 50-dma. I still see the 1420 level as likely overhead resistance. A breakout higher could signal a run toward the 1440-1450 area.

Daily chart of the S&P 500 index:

The NASDAQ's bounce on Friday (+0.5%) was almost enough to push the index back into positive territory for the week. It wasn't quite enough and the NASDAQ snapped a five-week winning streak. The market's spike higher on Tuesday lifted the NASDAQ to round-number resistance at the 3100 level before reversing. If stocks continue to rally the levels to watch are overhead resistance at 3100 and the NASDAQ's 12-year highs near 3130 set back in March of this year.

On the other hand, if stocks retrace lower then look for support at the 3,000 mark and near 2950 or the simple 50-dma.

Daily chart of the NASDAQ Composite index:

The small cap Russell 2000 index saw the sharpest pullback with a four-day decline. The market's spike higher on Tuesday pushed the $RUT past resistance at 820 but it didn't last. The $RUT looks like it's headed for round-number support at the 800 level. If this level fails then there is potential technical support at the 50-dma, 100-dma, and 200-dma all in the 800-780 area.

Daily chart of the Russell 2000 index

Do you remember all the talk about the transportation sector and how they were not confirming the rally? Then two weeks ago the transports surged and bulls were claiming the rally finally had its confirmation. Well the rally in the transports has reversed, which doesn't help the technicians and is another caution flag for traders.

Daily chart of the Dow Jones Transportation Index

The economic and event calendar picks up a little bit this week. We'll see more data on house prices and sales. We'll get a second look at the U.S. Q2 GDP estimate, which is unlikely to change. We'll see both consumer confidence and consumer sentiment numbers. Plus, we'll get the Chicago PMI out on Friday. However, the media will be focused on the Republican's national convention which is supposed to start on Monday but might be delayed due to hurricane Isaac hitting the coast. The market will be focused on Federal Reserve Chairman Ben Bernanke's speech on Friday, August 31st in Jackson Hole.

Economic and Event Calendar

- Monday, August 27 -
The Republican national convention is supposed to begin but will likely be delayed due to hurricane Isaac.

- Tuesday, August 28 -
Case-Shiller 20-city home price index
Consumer Confidence (for August)

- Wednesday, August 29 -
Q2 U.S. GDP estimate
Pending Home Sales
Federal Reserve Beige Book

- Thursday, August 30 -
Weekly Initial Jobless Claims
Personal Income & Spending

- Friday, August 31 -
Chicago PMI for August
Fed Chairman Ben Bernanke speech in Jackson Hole
University of Michigan consumer sentiment (final for August)
Factory orders for July

Additional Events to be aware of:

Sep. 1st - ECB President Draghi speech
Sep. 3rd - Democrat convention begins
Sep. 6th - ECB meeting
Sep. 7th - U.S. nonfarm payrolls (jobs) report
Sep. 12th - German courts vote on constitutionality of ESM
Sep. 12-13th - (two-day) FOMC meeting

Also in September, the IMF will release their review of Greece. Plus, the U.S. will likely hits its debt ceiling again.

The Week Ahead:

Overall stocks are holding up pretty well considering all the challenges facing the U.S. and global economy. Oil prices have been on the rise and that's lifting gasoline prices, which in turn reduces the amount of discretionary spending consumers can make. The labor market in the U.S. remains weak. Europe is still dealing with its out of control debt issues and weak Eurozone members. Greece may still get kicked out of the Eurozone. Much of Europe is facing a recession while a few countries are in a depression. The slowdown in both Europe and the U.S. is having a big impact on China.

China's economy has fallen to its slowest pace in years. The lack of demand from the rest of the world has a created a new problem for China - lack of storage space. Unsold inventory is backing up and China's manufacturers are running out of space to store their goods. The Baltic dry goods index measures demand for shipping and the Baltic index is nearing multi-decade lows because there isn't any demand.

The big concern right now is that stocks have risen on expectations that the major central banks (The U.S. Fed, the ECB, China's central bank) will all announce some form of new stimulus soon. If there isn't new stimulus then this rally is likely to deflate. We probably won't see any stimulus in China until after the new leadership is in place so that's probably late October or November before they adjust their policies.

Fed Chairman Bernanke speaks this Friday, August 31st and Wall Street is holding its breath waiting for some hint of further stimulus (most likely QE3). Unfortunately, QE3 might be Bernanke's last "bullet" in his Fed policy gun. Currently the economic situation isn't bad enough for him to pull the trigger yet. Meanwhile ECB President is due to speak on Sept. 1st but he probably won't say anything of substance until the Sept. 6th ECB meeting. In reality Draghi probably won't say anything more to follow up on his "whatever it takes" comments from a couple of weeks ago until after the German court votes on the ESM and that's scheduled for Sept. 12th.

If I had to guess I would not be surprised to see stocks consolidate sideways while we wait for Bernanke to speak on Friday. Then assuming Bernanke disappoints the market his talk could be the catalyst that sparks another sell-off, which would be just in time for the traditionally weak month of September. It's a little early yet but there is also the potential that the S&P 500 fails here near 1420 and the move forms a bearish double-top pattern with its highs from spring of this year.

I don't want to sound too bearish here. Stocks have been pretty resilient lately in spite of the bearish trend of negative economic data from around the globe, including the U.S. I do want to caution readers that this is a delicate spot for the market with a lot of potential catalysts during a seasonally weak period on the calendar. Just throw another wildcard in the mix, the situation with Syria continues to worsen and the war drums between Israel and Iran are still getting louder.

The stock market volume will be very light this week. Not only is it the last week of "summer" with the Labor Day holiday just ahead of us but investors might also choose to stay on the sidelines until after Bernanke's speech this coming Friday.