Although we remain cautiously optimistic, we are realistic that there aren’t many signs of a bottom yet. That doesn’t mean stocks couldn’t rally from this point; there just isn’t enough evidence to be confident that stocks have hit their lowest point.

Last week, we mentioned that the retail reports from companies like Walmart (NYSE:WMT) and Target (NYSE:TGT) would set the tone for the market. We had hoped that the sales reports from these companies would help put minds at ease that consumers were still spending.

On the one hand, we got what we expected. Consumer spending is still rising. However, on the other hand, what consumers are buying is shifting, and companies couldn’t raise prices fast enough to avoid a catastrophic profit drop. WMT and TGT dropped more in one day last week than any other day since the crash of 1987.

If you listen to the news, it might seem that these companies lost money, but to be clear, almost all the retail companies that reported last week that were profitable last year, were still turning a profit this quarter. They were just turning a much smaller profit than expected.

What’s Coming Up

Looking ahead to this week, we expect volatility to stay high. Investors will be looking for anything that might calm inflation worries, but we don’t get any actual data until later in the week.

• Wednesday, May 25

The Fed will release the “minutes” from their last meeting, the purpose for which is to communicate what they are thinking to the market. So, the data is much more about what they believe now than what they were doing in the last meeting on May 3.

The Fed is definitely in “inflation-fighting” mode, so we don’t think they will try hard to please stock investors. Planning for the week ahead, it probably makes sense to put off adding anything to your portfolio until after the Fed has tanked the market again on Wednesday.

• Thursday, May 26

GDP is released each quarter and then revised twice before the final version. On Thursday, the first-quarter GDP report will be the first revision since it was released last month. The announcement comes with inflation data that we expect to be revised lower. That could boost the market nicely on Thursday, but don’t set your expectations too high.

• Friday, May 27

You have probably heard of the Consumer Price Index (CPI) because it is the most popular measure of inflation. However, the Fed and many investors prefer the Personal Consumption Expenditures (PCE) report, which comes out on Friday. This is the report we are crossing our fingers over this week. Energy prices have been flat lately, and retail discounting has probably brought inflation down a bit. Whether that is permanent or not doesn’t really matter in the short term because any signs of easing will be a good thing for stocks. We feel that the risk of buying into the market just before Friday’s PCE report is worth the risk.

What You Should Do

Traders have seemed convinced that the economy is heading towards a recession. However, with earnings growth still positive and consumers still spending, we think there is still a great shot at a short-term bounce to the upside.

We don’t suggest rushing into the market with buy orders yet; however, despite the selloff last week, consumer defensive companies look like good stocks to put on a buy list after this Friday.

We are also looking hard at tech again. From a technical perspective, the semiconductor industry is looking closest to a bounce within the entire sector, and they have already been oversold to the point of being undervalued.

If you’d like to learn how to gain access to our specific recommendations (we’ve closed out 49 winners of 51 trades for an average gain of 3.57% already this year) on how to play the market this week, click here.

Bottom Line

The retail reports last week did not save the market, but under the bad headlines was confirmation that consumers are still spending, which is good. Volatility will be high this week, and we don’t see any catalysts that could ease the pressure until Thursday or Friday this week.

For now, we recommend investors focus on building a watchlist including stocks in the semiconductor sector to buy once we have the next round of inflation data out of the way on Friday.