In the absence of data or policy catalysts and with the S&P 500 near four-year highs, market participants are hoping technical indicators hold the clues on whether stocks will sell off into September following a slow-speed rally.

The S&P 500 is a scant 0.06 percent away from closing at highs last seen in the pre-crisis days of June 2008, even as an unimpressive earnings season draws to a close. The looming U.S. presidential election adds to the uncertainty, and inconclusive economic data makes any bet on further economic stimulus from the Federal Reserve a risky gamble.

"I'm not laying out any new shorting strategies on fear the Fed could come in," said Brian Amidei, a managing director at HighTower Advisors based in Palm Desert, California.

True to form, market volumes have dried up in August. To some, the lack of volume is a clear signal of the relative weakness of the recent rally. Wall Street this week posted its two lowest volume days of the year, not counting half-days.

What has some other strategists nervous is what they see as relative complacency among investors. Volatility levels as implied by the CBOE Volatility index .VIX, or VIX, are at their lowest since June 2007.

"We implore you to raise cash into strength ahead of a sharp and swift late summer squall," Richard Ross, global technical strategist at Auerbach Grayson in New York, said in his latest note. "With both volume and volatility absent from the advance ... conditions are ripe for a rapid risk reversion to the mean."

The VIX closed Friday at its lowest level in more than five years, a time when the S&P 500 was hovering near 1,500 - a level it has failed to approach since the 2007-2009 selloff.

The S&P 500 chart is slightly more bullish than the VIX. After a steep rise to break through 1,400, the index seesawed around that level for about seven sessions in a pattern known as a flag formation. (Why? It kind of looks like a flag.)

Thursday's advance to four-month highs and Friday's confirmation of the new highs indicate 1,400 could become technical support.

Frank Cappelleri, U.S. market technician at Instinet in New York, said the sideways move after the 1,400 break up indicated consolidation and the low volume was typical of such a move in late August.

FED MINUTES AND BEYOND

The minutes of the latest Federal Reserve policy committee meeting, due Wednesday, could be the week's highlight in terms of calendar events as bets on intervention in support of the economy are partly to blame for the recent melt-up.

But with the Fed's annual economic symposium starting the following week at Jackson Hole, Wyoming, the Fed minutes could prove to be an insufficient market driver.

"The minutes are useful because they reveal some of the granularity of the discussions," said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors in Rochester, New York.

"If the Fed had some sort of magic elixir to fix our economy woes," he said, "you would have already seen it."

The back end of the week is heavy in housing sector data with home resales on Wednesday, new sales on Thursday and building permits on Friday.

Housing data has been a beacon of hope for the recovery, and market participants will focus on any improvement as a sign the economy will continue to grow, albeit slowly.

"There's been a lot of talk about a turn in real estate and that it has bottomed," said HighTower's Amidei. "I don't know if I see the turn just yet."

Just over a dozen S&P 500 companies report earnings next week, with the highlight Tuesday as Dell (DELL.O) and Best Buy (BBY.N) post their scorecards. Lowe's (LOW.N) reports on Monday and Hewlett Packard (HPQ.N) on Wednesday.

Of the 475 companies in the S&P 500 that have reported earnings this season, 68 percent have beat analyst expectations. That is higher than the long-term average of 62 percent and matches the average over the past four quarters.

(Editing by Leslie Adler)

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