Weekend Stock Market Outlook – September 25 2022

Stock Market Outlook entering the Week of September 25th = Downtrend

    • ADX Directional Indicators: Downtrend
    • Price & Volume Action: Downtrend
    • Elliott Wave Analysis: Downtrend

ANALYSIS
The stock market outlook remains in a downtrend heading into the final week of the 3rd quarter.

The S&P500 ($SPX) fell 4.6% last week, pressured by hawkish monetary policy around the globe. The index currently sits 8.5% below the 50-day, and ~13% below the 200-day moving average.

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of September 25 2022

All three indicators are bearish, with clusters of distribution days clearly showing institutional selling since the end of August.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of September 25 2022

COMMENTARY
The U.S. Fed raised interest rates 0.75% this week. Judging from the sell-off that following, a majority of market participants may have finally accepted the Fed isn’t planning to lower rates any time soon. Several investment banks even lowered their year-end targets for the SPX.

Increasing rates and asset class sell-offs aren’t a U.S.-only phenomenon. Central banks across the globe are raising rates to fight off inflation while seeing their stock markets drop. The new U.K. government went as far as announcing a stimulus plan, and no one like that either! Because, you know, inflation.

U.S. housing data was mixed. A continued slide in sales was offset by declining prices and an unexpected jump in housing starts (year over year).

The set-up for this week is definitely volatility!

Professional money managers and hedge funds face another quarter of sub-par returns, so they might try to engineer last minute profits and/or reduce losses. We’re due for some kind of bounce after last week’s sell-off, and a lot can be done with options these days.

Unfortunately, companies that have held up well, like Apple, could be sold into any rally specifically because they’ve held up well. If you want to lock in gains, you have to sell investments that still have them…just like everyone else. And if stocks with high market capitalization, like Apple, are sold off, market-weighted indexes like the S&P500 also sell off.

The VIX sits just below 30, above which is the level that stocks become uninvestable (or “F” bucket those of you that work with Hedgeye).  So even if we do get a month end rally, it’s not the time to be putting money into stocks.

With rates rising, bond volatility is also elevated (^MOVE – Bank of America’s Bond Volatility Index is above 110 or so), so bonds aren’t the place to be either.

Cash is the safest place, specifically the U.S. dollar.

Best To Your Week!

P.S. If you find this research helpful, please tell a friend.   If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Hedgeye, US Bureau of Economic Analysis

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.
Not a recommendation to buy or sell any security.
Posted in Historical Data, Market Trends | Tagged , , , , | Leave a comment

Weekend Stock Market Outlook – September 18 2022

Stock Market Outlook entering the Week of September 18th = Downtrend

    • ADX Directional Indicators: Downtrend
    • Price & Volume Action: Downtrend
    • Elliott Wave Analysis: Downtrend

ANALYSIS
The stock market outlook remains in a downtrend, with bearish signals across the board.

The S&P500 ($SPX) fell 4.8% last week, succumbing to worse than expected inflation data and option expiration. The index fell from a prior trendline, the traditional technical pattern of retesting prior support/resistance.

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of September 18 2022

Thanks to Tuesday’s big drop, the ADX directional indicators flipped back to bearish, as did price & volume.  The index gaped down to the 50-day and kept going on higher trading volume, and followed that up with 2 more days of institutional selling Thursday and Friday.

Elliott Wave still shows the downtrend in progress.  The chart below includes a few adjustments to wave labels, but still tracks the Double-Three corrective pattern.  At this point, the SPX completed the initial “flat” segment in mid-June, and 3-waves up in mid-August qualifies for the next “any 3-wave pattern” segment.

Now comes the hard part, as any corrective pattern is possible is the Double-Three remains valid. The index could experience another “flat” pattern, a traditional “zigzag” pattern, or something else.  In all cases, there’s a very high probability the SPX falls below the June low.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of September 18 2022

COMMENTARY
August CPI data disappointed many market participants before the stock market opened on Tuesday.  The CPI index rose 0.1% from July, while year-over-year data showed annual inflation fell slightly to +8.3%.  Core CPI increased 0.6% from July, with the year-over-year reading at 6.3% (July’s y-o-y figure was 5.9%).

August producer prices were a bit better, but not by much.  Wednesday’s release showed PPI dropped 0.1% month-over-month, while the year-over-year reading remained constant at 8.7%.  Core PPI rose 0.2% m-o-m, with the y-o-y figure showing an increase of 5.6%.

Retail spending data came out Thursday, and continued to show a weakening consumer.  And Friday’s quadruple witching day didn’t disappoint, in terms of volatility and trading volume.

I wasn’t expecting CPI to have such a dramatic impact on the market, but it appears that investors and traders drank too much “peak inflation” kool-aid and had to readjust their hedges ahead of Friday’s option expiration.

To be fair, I also thought we had seen a peak in inflation data.  Most narratives over the past 3 months have said that inflation had peaked, the market had already accounted for all the rate hikes, the end is near for this Fed hiking cycle, buy the dip, etc.

But the bond market continues to signal more risk in the near term, peak inflation or not (i.e. it remains steeply inverted).  And corporate earnings still have NOT priced in the impact of higher inflation (i.e. slowing retail spending).  So the market sell-off itself wasn’t so surprising.

This week, the U.S. Fed is set to hike interest rates again; Fed watchers expect another 0.75% increase.   There’s also a slew of housing data set to be released Monday through Wednesday, and it’s likely adds to the case for an ongoing economic slowdown (despite inflation).

Best To Your Week!

P.S. If you find this research helpful, please tell a friend.   If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Hedgeye, US Bureau of Economic Analysis

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.
Not a recommendation to buy or sell any security.
Posted in Historical Data, Market Trends | Tagged , , , , | Leave a comment

Weekend Stock Market Outlook – September 11 2022

Stock Market Outlook entering the Week of September 11th = Downtrend

    • ADX Directional Indicators: Uptrend
    • Price & Volume Action: Mixed
    • Elliott Wave Analysis: Downtrend

ANALYSIS
The stock market outlook stayed with a downtrend, despite of some short-covering ahead of this week’s event risks.

The S&P500 ($SPX) rose 3.6% last week, finding support near 3900 (the late May early July support/resistance area) for a second week.  The SPX even managed to reclaim the 50-day moving average on Friday.

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of September 11 2022

Also on Friday, the ADX directional indicators flipped to bullish.  Even with the move above the 50-day moving average, the price/volume signal only shifts to mixed.  Friday’s move came on lower and below-average trading volume, and the distribution day count is elevated at 6.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of September 11 2022

The Elliott Wave shows a completed first wave for the new downtrend, so the counter-trend rally isn’t too surprising.

COMMENTARY
Tricky week ahead with three market moving events on tap, so I fully expect more chop as traders adjust their portfolios and hedges.

The latest CPI numbers are released on Tuesday, followed by PPI numbers on Wednesday.  It’s hard to know how stocks will react, so I’ll be watching the yield curve to see the expected impact, if any, to Fed policy.  Friday is a quadruple witching day, with quarterly, monthly, weekly options and futures contracts expiring.

Best To Your Week!

P.S. If you find this research helpful, please tell a friend.   If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Hedgeye, US Bureau of Economic Analysis

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.
Not a recommendation to buy or sell any security.
Posted in Historical Data, Market Trends | Tagged , , , , | Leave a comment

Weekend Stock Market Outlook – September 4 2022

Stock Market Outlook entering the Week of September 4th = Downtrend

    • ADX Directional Indicators: Downtrend
    • Price & Volume Action: Downtrend
    • Elliott Wave Analysis: Downtrend

ANALYSIS
The stock market outlook flipped to a downtrend last week as U.S. equities continue to sell-off.  The S&P500 ($SPX) dropped a little more than 3% last week, finding some support near 3900 (the late May early July support/resistance area).

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of September 04 2022

In terms of short-term trendlines, an uptrend drawn through closing prices broke last Tuesday, while a trendline through daily lows remains intact.

On Tuesday, price & volume joined the ADX in signaling a downtrend, after the SPX sliced through the 50-day moving average on increased trading volume.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of September 04 2022

Elliott Wave also flipped to a downtrend when index closed below the June 28 intraday high of 3,946, causing Wave 4 to overlap Wave 1.

COMMENTARY
Since touching the 200-day moving average 3 weeks ago, the SPX corrected ~10%! I know I wrote about downside risk and choppy price action, but that was a bit more than I expected.

Recent price action is a good reminder that anything’s possible.  Some back and forth whipsawing wouldn’t surprise me one bit with Wall Street returning to the trading desks.

A few economic data points came out last week. All of them are backward looking, but could support a view that the U.S. economy hasn’t been impacted by recent rate hikes and can therefore handle more.

The Job Openings and Labor Turnover Summary or JOLTS for July was essentially unchanged from June. The August ISM data for manufacturing PMI remained the same as July with a reading of 52.8 (>50 indicates expansion in manufacturing activity). And total nonfarm payroll employment showed a 0.2% increase in unemployment, up to 3.7%.

U.S. markets are closed Monday (today) for Labor Day.

Best To Your Week!

P.S. If you find this research helpful, please tell a friend.   If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Hedgeye, US Bureau of Economic Analysis

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.
Not a recommendation to buy or sell any security.
Posted in Historical Data, Market Trends | Tagged , , , , | Comments Off on Weekend Stock Market Outlook – September 4 2022

Weekend Stock Market Outlook – August 28 2022

Stock Market Outlook entering the Week of August 28th = Uptrend

    • ADX Directional Indicators: Downtrend
    • Price & Volume Action: Uptrend
    • Elliott Wave Analysis: Mixed

ANALYSIS
The stock market outlook retains the uptrend designation, but signal strength weakened after Friday’s sell-off.

The S&P500 ($SPX) fell 4%, with most of that damage occurring after Fed Chair Powell’s comments on Friday morning.  Earlier in the week, the index fell back into the support/resistance battleground that’s been with us since late February and early March.  The SPX enters the week just above its 50-day moving average.

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of August 28 2022

The ADX directional indicators flipped on Friday, moving this signal to a downtrend. Price & volume remains in an uptrend, thanks to the low number of distribution days.  Leading stocks (e.g. IBD Innovator 50 $FFTY) held up well all things considered.  Watch for high volume down days, especially those that cut through the 50-day.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of August 28 2022

Elliott Wave is still mixed.  Bearish viewpoints gained popularity last week, as did the number of possible wave counts.  In all bearish cases, the SPX is in the first wave of a new downtrend.  Some bearish counts appear to support a bullish view as they unfold, which is the reason this signal is still mixed.  A bullish view remains intact as long as the current down wave (Minor 4) doesn’t drop below 3,946 (Minor 1 high).  That said, I’d expect the SPX to stay below 4367 if the bear market rally is over.

COMMENTARY
The call for choppy price action was spot on, and volatility spiked last week.  The SPX’s volatility index ($VIX) gapped up last Monday and closed out the week near 26.  That’s right in the middle of Hedgeye’s “chop bucket” (i.e. 20-30), where the market tends to gap down sporadically.

Expanding the view to other indexes, we can see even higher levels of volatility (i.e. risk).  Both the Nasdaq and Russell 2000 have their own volatility indexes (i.e. $VXN and $RVX, respectively).

Daily Volatility Values

The $VXN and $RVX ended the week above 30. A reading above 30 is affectionately referred to as the “F bucket” by Hedgeye, and means there’s a high probability of sell-offs…big ones.  Keep that in mind when evaluating new trades or existing holdings.

Friday’s surge in volatility was a response to Fed Chair Powell’s press conference.  The size and scale of the sell-off confirms market participants expected “dovish” remarks, which were nowhere to be found.

By dovish, I mean expecting a statement like “as indicated by flattening CPI and PPI data, our aggressive rate hikes have begun to reign in inflation, and this dynamic will play an important role in upcoming rate adjustments”.  A statement like this would support the “rate hikes will slow down and turn into rate cuts sometime in 2023” narrative that led markets higher in July and August.

Instead, the hawks were out:

The Fed is committed to raising and maintaining interest rates. Period. GDP slows?  Meh.  Unemployment rises?  An unfortunate, but unavoidable, side effect of getting inflation under control.

As inflation improves, expect the narrative to change.  CPI and PPI will remain important talking points, but expect to hear more about Personal Consumption Expenditures (called the “PCE”).

The PCE Index dropped in July, from 6.8% to 6.3% versus a year ago. Core PCE, which excludes food and energy, came in at 4.6%.  The Fed uses Core PCE data as its primary inflation gauge.  Bullish commentators are likely to reference this number to justify their case for fewer rate hikes and end of year price targets, since it’s close to the Fed’s 2% goal.

Best To Your Week!

P.S. If you find this research helpful, please tell a friend.   If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Hedgeye, US Bureau of Economic Analysis

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.
Not a recommendation to buy or sell any security.
Posted in Historical Data, Market Trends | Tagged , , , , | Comments Off on Weekend Stock Market Outlook – August 28 2022

Weekend Stock Market Outlook – August 21 2022

Stock Market Outlook entering the Week of August 21st = Uptrend

    • ADX Directional Indicators: Uptrend
    • Price & Volume Action: Uptrend
    • Elliott Wave Analysis: Mixed

ANALYSIS
The stock market outlook uptrend continues into its 5th week, even though the SPX met resistance at a key indicator for technical analysts.

For the week, the S&P500 ($SPX) fell 1.2%, after failing to break through the 200-day moving average on Tuesday.

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of August 21 2022

The ADX remains bullish and price/volume actions shows the index above the 50-day moving average with a low number of distribution days. The trend of lower trading volume continues.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of August 21 2022

Elliott Wave is unchanged from last week, other than the fact that the index moved from an up-wave to a down-wave. If the rally is complete (Wave C complete), Tuesday’s high was the top. If the rally isn’t over (Wave 3 complete), the index could drop as far as the late June high (~3950) before heading higher again.

COMMENTARY
Fed minutes were released last week, but amounted to a nothing burger. Some market participants reacted were surprised by the hawkish tone. But those were the same people that assumed the words “neutral rate” meant the Fed was pivoting to rate cuts.  Look for more slicing and dicing of Fed comments coming out of the Jackson Hole Economic Symposium this week.

The retail sales report hit the wires too. Overall spending in July remained unchanged from June, similar to the CPI report 2 weeks ago. Housing data showed declines in the residential market (housing starts, permits, and mortgage applications), which supports recession narratives.

Friday’s weekly & option expiration covered ~$2.1 trillion, which would be a lot for a quarterly expiration date, let alone a monthly one like August. Then again, maybe it’s not surprising. If you’ve been watching stocks with high levels of short-interest, you know people are still gambling on short squeezes ($BBBY or $WEBR anyone?). Goldman Sach’s “Most Short Basket” of stocks was up a whopping +21% in the first two weeks of August alone!

I expect trading volume to pick up over the next few weeks as summer holiday’s come to a close and institutional trading desks get back to work. Quantitative tightening, rate hikes, and poor hedge fund performance will make for a challenging trading environment over the next few weeks, not to mention Q4.

The volatility index for the SPX ($VIX) is trading just above 20, after bottoming out around 19 last week.  A $VIX reading between 20 and 30 is called the “chop” bucket by risk-management firm Hedgeye, because price action is uneven or “choppy” between those levels, leading to traders getting chopped up.

Back in late March & early April, the VIX was near a similar level, and the SPX took ~2.5 weeks of that back-and-forth market action to drop 5% (local high point to the 50-day moving average).  With SPX is currently ~6.5% above the 50-day, there’s a high probability we see a choppy sell-off over the next few weeks…without any change the signals shift to a downtrend.

Best To Your Week!

P.S. If you find this research helpful, please tell a friend.   If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Hedgeye, U.S. Bureau of Labor Statistics

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.
Not a recommendation to buy or sell any security.
Posted in Historical Data, Market Trends | Tagged , , , , | Comments Off on Weekend Stock Market Outlook – August 21 2022

Weekend Stock Market Outlook – August 14 2022

Stock Market Outlook entering the Week of August 14th = Uptrend

    • ADX Directional Indicators: Uptrend
    • Price & Volume Action: Uptrend
    • Elliott Wave Analysis: Mixed

ANALYSIS
The stock market outlook uptrend continues into its 4th week, with the SPX breaking through overhead resistance and ~10% from break-even, year to date.

The S&P500 ($SPX) rose 3.3% for the week, and sits just below the 200-day moving average, a key psychological indicator for technical analysts.  As of Friday’s close, the index has rallied ~18% from the June low, which is average for a bear market rally over the past 20 years (I saw that stat last week, but can’t find the source).

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of August 14 2022

All three signals remain unchanged. The ADX and price/volume show bullish price action.  The biggest caveat is the lack of trading volume, but that’s not uncommon during the summer months.

Elliott Wave is still mixed, while we await to completion of the current wave, which appears to have extended.  So far, it retraced a little more than 50% of the entire bear market.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of August 14 2022

COMMENTARY
A lot of U.S. inflation data to sift through last week, but overall the numbers show movement in the right direction.  Both consumer and producer prices retreated during July, thanks to a drop in energy prices (mainly oil and gas), confirming inflation reached a peak in June.  I say “a” peak, rather than “the” peak, because a spike in oil price likely sends inflation back up.

CPI was +8.5% year over year, versus expectations of 8.7% and a bit lower the last month’s 9.1% increase. The month over month reading was unchanged from June, leading some to say the U.S. experienced zero inflation in July. A classic half truth, but I digress.

Core inflation was 5.9% year-over-year, which was a welcome surprise to the downside (6.1% was the expectation). Bottom line, CPI didn’t get worse last month, mainly because gasoline prices declined 7%.

PPI data showed a +9.8% increase year-over-year, versus an expectation of 10.4%. Like CPI, the reading was below the June number of 11.3% and benefiting from the lower energy prices. Core PPI was 7.6%, below the expectation of 7.8%.

Along with the lower inflation readings came new expectations of smaller rate hikes for the rest of the year.  Before everyone gets carried away, year-over-year inflation is still rising.  Even if August, September, October, and November M-o-M readings showed no change, the Y-o-Y CPI in December would STILL be show a 6.5% increase (3x the long term target of 2%).

The Inflation Reduction Act was passed, but it’s light on inflation reduction and heavy on stimulus.  There’s a lot of investment and subsidies in the bill, which is inflationary, even if it’s also good strategically/geopolitically.  The higher corporate taxes and buyback fees will increase corporate expenses and lower profits, and that should lower job and wage growth, which should eventually lower inflation.  The bill IS projected to reduce the federal deficit, so calling it the Deficit Reduction Act is more accurate, but I digress…again.

Q2 earnings season is winding down, and for the most part, earnings beat expectations. Those expectations were double-digit percentages lower verses a year ago, but that didn’t matter much to investors as they piled back into the market.  I even heard a narrative that  a recession won’t be as bad as feared, because earnings season was so strong! Of course, the same people were adjusting the rule-of-thumb definition of a recession two weeks ago, in order to say the U.S. wasn’t in a recession…

Bull or bear, let price be your guide.  The signals tracked here have been bullish for a few weeks, and long-only investors probably have a nice recovery in their stock holdings.  It’s a great time to review your holdings and take profits if you have them.  Or reduce your level of risk if the March and/or May drawdowns kept you up at night!

Best To Your Week!

P.S. If you find this research helpful, please tell a friend.   If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Hedgeye, U.S. Bureau of Labor Statistics

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.
Not a recommendation to buy or sell any security.
Posted in Historical Data, Market Trends | Tagged , , , , | Comments Off on Weekend Stock Market Outlook – August 14 2022