Following through just as scripted on the reversal bar from two Fridays ago, the market rallied quite nicely last week. When all was said and done, the S&P 500 gained 4.3% last week, following one of the most bearish weeks we’ve seen in years.

And yet, the effort didn’t get the market back above the most important hurdle the bulls wanted cleared. In fact, the buyers began to retreat as soon as push came to shove.

Maybe it was just a pause so traders wouldn’t be overexposed to stocks in front of the three-day weekend. Or, maybe it’s a hint that traders don’t really believe this rally effort is going anywhere.

We’ll examine the big technical ceiling below, as always, after running down last week’s and this week’s economic news.

Economic Data

Busy week last week, with most of the major economic news crammed into the last three trading days. Let’s run through it in the most time-effective way possible, beginning with the big inflation report for January.

As it turns out, we’re seeing plenty of it, and more than expected… though perhaps not as much as last week’s headlines would imply. The overall inflation ‘rate’ now stands at 2.13%, and is only 1.8% on a core basis. Producers are seeing a little more, with their prices being up 3.1% last month, on an annualized basis.

Consumer and Inflation (Annualized) Charts

Source: Thomson Reuters Eikon

The chatter about the need for rate hikes sooner than previously anticipated was spurred by the surprisingly rapid increase in prices from December’s levels, but that wasn’t a terribly meaningful comparison. As you can see, inflation rates are actually stabilizing at sustainable and healthy levels.

The headlines regarding retail sales in January was similarly misleading. Yes, retail consumption was flat in January, but that was compared to December’s spending levels after allowing for a seasonal adjustment (and adjustment that’s not exactly perfect). Taking automobile sales into account, retail spending actually fell 0.3% last month.

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