The World Bank cut its 2013 global GDP forecasts from +3.0% down to +2.4% growth. China's GDP fell to its lowest levels since 1999. Shares of Apple Inc. (AAPL), the world's largest tech-stock by market cap, are flirting with a breakdown under round-number support at the $500 level. Yet the U.S. market has shrugged off these headlines and disappointing economic data to focus on earnings news.

There have been exceptions but so far the earnings parade has been a positive one. The S&P 500 has rallied to its highest levels since 2007. The Dow Jones Transportation average and the small cap Russell 2000 index have both hit new all-time, record highs. According to a USAtoday article the current bull market, dating back to the "turnaround that began March 9, 2009" has produced +118% gains. That puts it among the top nine bull markets the S&P 500 has ever seen.

It was a busy week for economic data. The Philadelphia Fed survey was a big disappointment. Economists had been expecting the survey to improve from last month's +4.6 reading. Yet January's reading fell into negative territory at -5.8. The New York Empire State fed survey produced a minor bounce from -8.1 to -7.8 but analysts had been forecasting a much bigger improvement. The University of Michigan Consumer Sentiment reading for January fell from 72.9 down to 71.3. Expectations had been for a bounce into the 75 area. It is currently at the lowest levels since December 2011. Many are blaming all the negative hype over the fiscal cliff and the return of the payroll tax reducing consumers' paychecks for the weak sentiment numbers.

We did see a few benign or positive economic reports. The PPI for December fell -0.2%. The Fed's Beige Book showed that all 12 districts were seeing modest growth. Housing starts for December came in at 954,000, which is up significantly from the prior month's 851,000. Building permits edged higher to 903,000 up from 899,000 the month before. I mentioned the China GDP headline earlier. China' National Bureau of Statistics reported that their country's Q4 GDP came in at +7.9%. That was better than the +7.8% estimate and up from Q3's +7.4%. China's GDP growth for all of 2012 fell to the slowest pace in 13 years. The uptick higher late in the year has many believing that China may have finally found a bottom. There is some evidence to suggest that Chinese exports are improving.

Major Indices:

The rally in the S&P 500 continues. After hovering near the 1470 level for a few days, the index bounced off its rising 10-dma and surged to a new multi-year high. The breakout past its 2012 highs is certainly very bullish and the index is up about +6.0% in just over three weeks. You could argue the S&P 500 is short-term overbought here. Yet I don't think it will see a pullback until the S&P 500 tags the 1500 level.

The next resistance level should be round-number, psychological resistance at the 1500 mark. Now that the S&P 500 has broken free of its 2012 highs the 1500 level should act as a magnet, pulling the index higher. Whether or not the index breaks out past the 1500 level may depend on earnings news or the upcoming debt ceiling fight in Washington. Naturally we could expect a pullback once the S&P 500 hits this resistance. Or it could churn sideways for a while as it tries to generate enough momentum to breakout, just like we saw a few days ago with the S&P 500 hovering near 1470.

If the S&P 500 retreats from the 1500 level we can look for potential support near 1470, 1460, and 1450.

chart of the S&P 500 index:

The NASDAQ composite only gained +0.29% for the week, making it the worst performer among the major indices. Big declines for major tech stocks like AAPL and GOOG acted like an anchor. Friday's plunge in shares of Intel (INTC) certainly did not help either. In spite of the high-profile disappointments the trend for the NASDAQ is still higher. It's currently sitting under resistance near the 3150 level. Should it breakout past 3150 the 3200 level is probably even tougher resistance. I would look at the 3050 level as potential support.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index added +1.3% for the week and set new all-time, record highs. The $RUT is up +7.2% from its December 28th close. You could argue this index is overbought here. The 900 level could easily become round-number resistance. The combination of being overbought and about to hit what could be significant resistance raises the risk of a pullback.

On the chart below I have added a Fibonacci retracement tool. If the $RUT does correct from the 900 level I would expect a pullback toward 880 or 875.

chart of the Russell 2000 index

I've still got my eye on the volatility index (VIX). The VIX is typically seen as a "fear gauge". Low levels indicate no fear and high levels indicate significant fear of market declines. The VIX just fell to its lowest level since April 2007. What this is telling you is that investors are very complacent. There is no fear of a market correction. When traders get too comfortable it sets up for a potential reversal in the market.

From a technical standpoint any time the VIX hits a relative extreme it is also signaling a potential reversal. A big surge higher could signal a potential bottom soon. A sharp drop lower could signal a potential top in the market soon. The challenge is how to apply this information. Reading the VIX is more of an art form than a science since it can stay elevated at high levels or stay depressed at very lows levels for many days.

I suspect that the combination of the S&P 500 index nearing what is probably resistance at 1500, the Russell 2000 index nearing probable resistance at 900, and the VIX hitting new multi-year lows, could all be signaling a potential reversal at resistance soon. It may just be a short-term pullback or it might be more significant.

chart of the Volatility Index (VIX)

Economic Data

The economic calendar is pretty light. There is an EU finance ministers meeting on Monday (Jan 21st). The Chinese PMI and Eurozone PMI data come out on Wednesday and Thursday, respectively. ECB President Mario Draghi is due to speak on Tuesday. The IMF will release their world economic forecast on Wednesday. Yet the earnings parade continues, which will likely keep investor focus on corporate results.

Economic and Event Calendar

- Monday, January 21 -
U.S. markets closed for Martin Luther King Day
EU finance minister meeting

- Tuesday, January 22 -
existing home sales
German ZEW (sentiment) index

- Wednesday, January 23 -
China HSBC flash PMI

- Thursday, January 24 -
Weekly Initial Jobless Claims
Eurozone PMI

- Friday, January 25 -
new home sales

The Week Ahead:

Looking ahead the trend is still up. That may change when the S&P 500 and the Russell 2000 indices hit resistance. Stocks don't move in a straight line for very long and I suspect the Dow Jones transportation index will see a pull back soon. The VIX has fallen to multi-year lows, which suggests there is too much bullish sentiment. If everyone is bullish it is a danger sign.

Imagine a boat where one side of the boat says "bullish" and the other side says "bearish". All the traders are in the middle. As more and more investors move to the "bullish" side of the boat that side starts to dip toward the water. If everyone walks to the bullish side of the boat there is a risk it could tip over.

Big picture the global growth situation is still muddy. Europe and Japan remain in recession. China just posted its slowest growth in 13 years. The U.S. is about to see another ugly battle in Washington over the debt ceiling. A couple of days ago Japan decided they need to weaken their currency to make their exports more competitive and boost growth. Russia has warned that the globe is on the verge of a currency war as everyone tries to weaken their currency to keep their own country's exports competitive.

On the positive side of things, China's latest GDP number was slightly better than expected and there are new hopes that China's growth has found a bottom. The Q4 earnings season, thus far, has been relatively bullish. Unfortunately, as we move deeper into the earnings season the results tend to deteriorate. Apple Inc. (AAPL) could be a big disappointment when they report earnings on January 23rd. Wall Street is expecting AAPL to produce earnings of $13.44 a share. If that's true, it would be the first time in nine quarters that earnings declined from the same quarter a year ago. If AAPL breaks down under the long-term bullish trend line of higher lows, it could definitely weigh on investor sentiment.

chart of the Apple Inc (AAPL)

I could be wrong about 1500 being resistance for the S&P 500. It's possible the rally continues. The all-time high is near 1570. Yet with the debt ceiling debate just a few weeks away I don't have a lot of hope that stocks rally during another political battle in Washington.

If you're looking for an entry point for a long-term trade it might pay to just sit back and wait. Otherwise, I would scale into positions slowly. That way if a trade moves against you, you're not 100% invested.