Weekend Stock Market Outlook – June 26 2022

Stock Market Outlook entering the Week of June 26th = Downtrend

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

ANALYSIS
A downtrend for the stock market outlook remains in place the last week in June, with price action looking similar to the end of May.

The S&P500 ($SPX) rose a little more than 6%, but remains ~4% below the 50-day and ~13% below the 200-day. Friday’s strong move put the SPX into the middle of a resistance zone created by the May lows.

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of June 26 2022

The ADX stays in bearish territory for now.  Another strong up day this week likely flips the signal to bullish.

Price/volume moves to mixed, with a follow-through on Day 4 of the latest rally attempt (Day’s 4 through 10 is the window for confirmation). Unfortunately, there are issues. Ideally, a rally begins with the index above the 50-day moving average. The index remains below that level, which creates overhead resistance for any fledgling uptrend.

More concerning than the price level is the trading volume. Both the rally start and the follow-though came on higher than average trading volume, but not because traders were bullish or fundamentals supported those moves. Instead, trading volumes were elevated by market “events”; quarterly options and futures expiration (quadruple witching day) and index rebalancing, respectively.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of June 26 2022

Elliott Wave also shifts to mixed, thanks to the MACD divergence finally showing up.  It’s very small, but it’s there, so another bear market rally is in play.  The SPX retraced ~50% of the June early to mid June drop, which is the minimum retracement for a 2nd wave.  The maximum would be 100%, or the June high near 4200.  Passing that level invalidates the current count, but not the bear market downtrend.

COMMENTARY
Summer started last week, and with it a relatively quiet time for the market, in terms of data.  Earnings season starts in 3 weeks, and trading volume around the 4th of July holiday in the U.S. is traditionally low.  Maybe buyers will be able to bid up the price and we see a face-ripping, bear market rally?  Maybe not.

As Mark Douglas states in his book “Trading in the Zone”, the first fundamental truth of trading is “Anything can happen”.

Best To Your Week!


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Weekend Stock Market Outlook – June 19 2022

Stock Market Outlook entering the Week of June 19th = Downtrend

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

ANALYSIS
The stock market outlook downtrend continues, following last week’s sell-off.  The S&P500 ($SPX) tried to recover midweek, but gapped down Thursday before the open, and basically stayed at that level through Friday.

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of June 19 2022

The index ended the week ~6% lower, and sits ~12% below the 50-day and ~20% below the 200-day.  For a bit of context, at the height of the COVID crash, the SPX was about 36% below the 200-day; the Great Recession reached 66%, while the Dot.com crash hit 37%.

The ADX and price/volume signals are bearish, and Elliott Wave is back to a downtrend.

Between the Fed meeting and the massive option expiration, the stage was set for a potential rally back to resistance near 4400.  Instead, the pre-market gap-downs on Monday and Thursday increased the probability that the “3-wave pattern” completed in early June (verses the prior count that put the index in the middle of that pattern).

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of June 19 2022

The good news?  Regardless of which count prevails (both are still possible at this point), the market is due for a counter-trend rally.  The 3600 level is prior resistance turned support (August 2020), and a positive divergence developed in the RSI as well, so maybe this week will give traders some relief.

Before you break out the champagne, keep in mind that the bear market is just getting started…the SPX hasn’t even reached the 38% retracement level yet.

Technical analysis of weekly SPX prices

SPX Elliott Wave Analysis for the Week of June 19 2022

COMMENTARY
As expected, a lot of volatility last week. Things kicked off with a bang, with another cryptocurrency-related blow-up. This time it was an exchange (Celsius) halting all withdrawals from its platform. Unfortunately, blow-ups like this will occur more frequently as liquidity is removed from the system (i.e. qualitative tightening).

Then “someone” leaked that the Fed was likely to hike interest rates by 0.75%, rather than the 0.5% they forecast in May. The rumor quickly spread, and basically became a sure thing in the eyes of most financial media. They even debated whether the Fed should raise by 1% or more! On Wednesday, the Fed did raise rates by 0.75%, citing recent inflation data shifting their view.

Back in reality, the near-term impact to inflation is minimal, and that wouldn’t have changed if the Fed hiked rates 2%! Markets would’ve dropped bigly, but inflation? Not so much. For the rest of the year, supply and demand factors are pretty much locked in. Even if we’ve already seen “peak” inflation, the numbers will remain high for a while, so strap in.

The situation isn’t any better across the pond, as the European Central Bank (ECB) did an about face and is now set to raise interest rates. The ECB confirmed a 0.25% hike in July (its first increase in more than a decade), and hinted at a larger increase in September if inflation remains high.  And just like the U.S., the hikes are in spite of the fact that the Euro-zone is experiencing an economic slowdown.

A short trading week in the U.S., with the markets closed for Juneteenth National Independence Day, to celebrate the end of slavery in the United States.

Best To Your Week!


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Weekend Stock Market Outlook – June 12 2022

Stock Market Outlook entering the Week of June 12th = Downtrend

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

ANALYSIS
The stock market outlook remains in a downtrend after a dramatic sell-off on Thursday and Friday.  The S&P500 ($SPX) ended the week ~5% lower, and sits ~14% below the 200-day and ~8% below the 50-day.

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of June 12 2022

The ADX signal remains bearish, after coming ever so close to reversing last Tuesday.  The price & volume signal moves back to a downtrend, after picked up two distributions days.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of June 12 2022

Elliott Wave puts the SPX in the last leg (Minor C Wave) of Intermediate (B). The RSI is already in oversold territory, so watch for a positive divergence in the MACD to develop as the market bottoms, similar to the price movement in early march.

COMMENTARY
The latest U.S. consumer price index (CPI) readings were released Friday morning, and came in higher than expected (again). We’ve now reached inflation levels unseen since December on 1981, all while real wage growth continues to slow!

  • Month over Month
    • Headline:  +1.0%  vs  +0.7% expectation
    • Core:          +0.6%  vs  +0.5% expectation
  • Year over Year
    • Headline:  +8.6%  vs  +8.3% expectation (a new, 41-year high)
    • Core:          +6.0%  vs  +5.9% expectation (also a new high)

This print guarantees the Fed will raise interest rates during the policy meeting later this week. Now the question is whether they stick to the 0.5% rate hike schedule they discussed last time around.

The situation isn’t any better across the pond, as the European Central Bank (ECB) is also set to raise interest rates into their own economic slowdown. The ECB confirmed a 0.25% hike in July (its first increase in more than a decade), and hinted at a larger increase in September if inflation remains high.

Adding more uncertainty (i.e. volatility) this week is Friday’s quadruple witching day, with quarterly, monthly, and weekly options set to expire. I’ve read that ~$3 trillion worth of contracts are in play, which is more than enough to impact prices.

Longer term, things continue to weaken for retailers. Three weeks ago, Target (along with Walmart) reported a big earnings miss, and reduced their earnings guidance for the year. Last week, Target announced actions to reduce inventory levels by reducing prices and canceling orders. They also lowered operating margin estimates for the quarter. The ink is barely dry on the first guide down!   It makes me wonder what’s in store for us when the next earnings season kicks off in about 1 months time.

Best To Your Week!


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Weekend Stock Market Outlook – June 5 2022

Stock Market Outlook entering the Week of June 5th = Downtrend

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

ANALYSIS
The stock market outlook maintains a downtrend signal, with the S&P500 poised for a repeat of February’s price action. The S&P500 ($SPX) fell 1.2% last week, struggling to break through resistance between 4100 and 4200.

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of June 05 2022

The ADX remains in downtrend. The index couldn’t generate enough upward price movement to shift the directional indicators, though both fell throughout the week.

Not much happened on the price/volume front, with only 1 session of above average trading volume in the past 2 weeks.  The lack of a high-volume follow-through day last week lowers the probability of success for the latest rally attempt.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of June 05 2022

Elliott Wave shows 5-waves up and a negative divergence in the RSI, supporting the completion of an Intermediate (A).  Intermediate (B) would head back towards the May low, with the MACD putting in a positive divergence (e.g. early March). Then it’s back toward the mid-4000s for Intermediate (C) and the final leg of this year’s second bear market bounce.

COMMENTARY
Adding to recent commentary on spending levels and consumer strength, several analysts trotted out wage growth as another sign that the consumer is just fine. Why? Everything else being equal, rising wages correlates to rising spending, which should maintain economy growth. The problem is that “everything else” is definitely not equal right now.

Inflation is running higher than wage growth, which means that your costs are increasing faster than your income. You have more money coming in, but more money is going out even though you’re not buying more stuff.  And THAT is the critical factor most analysts aren’t mentioning.  The economy grows when consumption of goods and services increases…not spending on goods and services.

Semantics, they say. Wrong. If you’ve bought gas this year, you know what I’m talking about. You’re buying the same amount of gas, but it costs twice as much as it did last year. So your spending increased, but not your consumption.  If anything, you’re looking to reduce consumption as much as possible.  And that’s NOT a recipe for economic growth.

Businesses experience similar issues, so be on the lookout for companies taking down their guidance.  Earnings season just ended and companies are already making negative revisions for the next one (e.g. Microsoft)!

Best To Your Week!


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Weekend Stock Market Outlook – May 29 2022

Stock Market Outlook entering the Week of May 29th = Downtrend

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

ANALYSIS
The stock market outlook shows a downtrend is still in place, despite the bear market rally.

The S&P500 ($SPX) jumped 6.6% last week, erasing almost a third of its total loss for the year.  The index now sits ~13% off it’s high for the year, 7% below the 200-day moving average and only 3% below the 50-day.  It closed in a critical zone, in terms of support and resistance, with the start of the March rally (support) creating a solid resistance level.

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of May 29 2022

The ADX signal remains in downtrend, but could flip if we see a more up days this week.

The S&P 500 showed a small amount of accumulation last week, so the price & volume signal shifts to mixed.  The index picked up a follow-through day on Thursday, four days after the May 20th bounce, which is the earliest possible confirmation of a rally.  That said, it’s a weak set-up based on below average trading volume and remaining below the 50-day.  A high volume follow-through this week would be a better signal.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of May 29 2022

Elliott Wave also shifts to mixed, and gets a new count/wave structure to go along with it  (more analysis below, per the usual for the past few weeks).

COMMENTARY
A short week on tap; U.S. markets are closed Monday in observance of Memorial Day.

You’ve heard a lot of commentary about whether or not we’re in a bear market.  Historically, a bear market begins after falling 20% a peak.  But really that’s an arbitrary number; a talking point.

Does something radically change in your process when a market is down 20% vs 19%?  What about when the Nasdaq is down more than 20% but the S&P500 isn’t?  I’m guessing that’s a negative in both cases. 

What does impact your process?  Data.  Like the VIX remaining above 20 during the March rally. Down 20% or not, that’s bear market territory and requires changes.

Speaking of data, what about consumer spending, credit card balances, or savings rates?  After downbeat forecasts from Target and Walmart, many talking heads are seizing the relatively upbeat reports from Macy’s, Nordstrom, and Ralph Lauren as a sign the consumer is still strong, along with spending levels and “high” savings rates. Unfortunately, the difference between the two types of retailers is actually a sign of weakness.

Target and Walmart serve consumers in lower-income brackets, and their reports show a change in spending behavior likely caused by high inflation.  Their customers are also the ones that began tapping credit card balances (with ridiculously high interest rates) to maintain their spending when inflation first began to pick up.

Nordstrom and Ralph Lauren cater to higher-income brackets; the last consumers to feel the sting of inflation and change their spending habits.  Their customers have the highest savings rates, which allows them to maintain spending in spite of higher inflation.

Best To Your Week!


P.S.
Based on the analysis shared last week, I updated the waves to show Cycle I ending at the beginning of the year.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of May 29 2022

Something about the wave structure of Intermediate (1) has seemed wrong from the start, especially when zooming out to the weekly view (like we’ve been doing the past few weeks). Maybe it’s just the symmetry of the whole thing, who knows. The pattern that kept popping out to me was 3 waves down, then 3 waves up, then 5 waves down. After last weeks bounce, it made even more sense.

Technical analysis of weekly SPX prices

SPX Elliott Wave Analysis for the Week of May 29 2022

That’s actually another type of corrective pattern, called a “flat” (verses a zigzag).  In this case, it looks like an irregular or expanded flat.  It looks like a much better match to the price action and technical indicators.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of May 29 2022

All good right?  Not quite.  Thanks to last week’s rally, this new flat pattern is already complete, implying the whole downtrend is over.  That’s wishful thinking, since the Fed’s quantitative tightening program hasn’t even started yet.  Given the current economic backdrop, a longer-term correction is likely, and a flat pattern enables this type of extended move, called a “double-three” (or even triple if it comes to that).

Double Three Corrective Pattern

Double Three Corrective Pattern

Laying in those patterns on the weekly view provides more likely alternatives for the overall bear market.

Technical analysis of weekly SPX prices

SPX Elliott Wave Analysis for the Week of May 29 2022

Technical analysis of weekly SPX prices

SPX Elliott Wave Analysis for the Week of May 29 2022


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Weekend Stock Market Outlook – May 22 2022

Stock Market Outlook entering the Week of May 22nd = Downtrend

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

ANALYSIS
The stock market outlook still shows a downtrend in place, with the S&P500 flirting with a 20% drawdown drop from its all time high. So far, sell in May and go away was the right call!

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of May 22 2022

The S&P500 ($SPX) fell ~3% last week, and now sits 10% and 15% below the 50 and 200 day moving averages, respectively. All three signals continue to show bearish trends in place.  Price/volume shows most accumulation days are quickly followed by sell offs on above average volume, but Elliott Wave indicates a relief rally may be in the cards near term.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of May 22 2022

The current Elliott Wave count shows Minute [v] wave of Minor 3 should end soon (if not already), giving the SPX a chance to rally back towards the Minor 1 low (~4380).  Note that there was another positive divergence in the RSI(5), but not the MACD; similar to the set-up at the end of April.   See below for additional EW analysis that indicates the bear market may be longer and deeper than previously thought…

COMMENTARY
Another wild week. A couple of hedge funds closed their books, and a more hawkish Fed caught option traders by surprise. Then there were the earnings reports: Target and Walmart reported lower than expected margins and their stock prices were punished…as was most of the retail sector.

Many taking heads and so-called experts are pointing to a “strong” consumer as a reason to discount weakness in earnings reports. Don’t be fooled. Consumers across the globe are struggling with high inflation, and that struggle won’t show up in corporate earnings until the back half of this year.

“Sub-prime” credit data (which lags by a couple of months) shows that consumer credit card balances have already started to increase. This category of borrower is the first to feel the impact of higher inflation, and credit card can only prop up spending levels for so long. Next, expect to see delayed payments to increase (they’re already beginning to inch higher).

Best To Your Week!

P.S. After “zooming out” last week, I was asked to “zoom out” even further.  The result was “not good”, and opens the possibility that the SPX has a longer and deeper correction than most investors anticipate.  The specific question concerned Cycle I and II labels; is it possible the January peak 2022 was end of Cycle I?

Previously, the count showed the Cycle I wave ending in mid-February 2020 when COVID-19 hit, Cycle II wave ending in late March, Primary [1] of Cycle III ending in January 2022.

Technical analysis of weekly SPX prices

SPX Elliott Wave Analysis for the Week of May 22 2022

But the bull market from 2009 (i.e. Cycle I wave) was courtesy of quantitative easing and low interest rates, and those conditions didn’t end until this year.  While correlation is not causation, it does make a convincing argument.  Anecdotally, it makes sense that all of Cycle I would have a common backdrop.

Technical analysis of weekly SPX prices

SPX Elliott Wave Analysis for the Week of May 22 2022

Looking back, a new count hinges on Primary [3] and Primary [4]; between 2018 and 2020.  That period threw a lot of people off, and I STILL haven’t seen a lot of agreement on the labeling.  So it’s definitely possible that Primary [4] was some type of “flat” or “combination” wave structure, paving the way for the post-COVID rally as Primary [5], and the January peak ending Cycle I. If Cycle I did end in January, then the wave structure I’m using for the outlook is off by one level.

Technical analysis of weekly SPX prices

SPX Elliott Wave Analysis for the Week of May 22 2022

The implications are:

  1. The SPX is only halfway through the first downward wave a large bear market (Intermediate (3) wave of the Primary [A] of the Cycle II downtrend, rather than the Rather than being in the final leg of the correction/downtrend (Minor 3 of an Intermediate (C) Wave) ).
  2. When Primary [A] completes, the SPX will see a substantial bear market rally
  3. Then the SPX drops back towards pandemic lows and we’ve got another Crying Jordan on our hands

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Weekend Stock Market Outlook – May 15 2022

Stock Market Outlook entering the Week of May 15th = Downtrend

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

ANALYSIS
The stock market outlook remains in a downtrend, with shock-waves from cryptocurrency spilling over into stocks last week.

The S&P500 ($SPX) dropped ~2.5% last week, thanks to a big reversal on Thursday and Friday. As of the close, the index needs to climb another 7.5% and 11% to reach the 50 and 200 day moving averages, respectively.

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of May 15 2022

The ADX remains bearish, and so does price/volume. Friday’s rally came on lower than average volume, which isn’t bullish.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of May 15 2022

Elliott Wave still shows a bearish trend.  Big rallies in a short amount of time, like the one last week, are typical of an ongoing bear market, not a bottom.  Bottoming is a process and takes time.  We’ve noted and positive RSI divergence, so I’m watching for a confirmation from the MACD over the next few weeks, similar to the price action seen in February.

COMMENTARY
Another week, another round of volatile price movements.  And not just stocks!  It takes a steady hand and a little luck to navigate this type of market environment.  Traditional safe havens (i.e. bonds) have underperformed, while utilities and the energy sector seemingly the only game in town.

Many highly shorted companies saw their stock prices rally sharply on Thursday and Friday.  Movement like that is typical when a hedge fund unwinds an account or closes out it’s books completely.

Or, funds may have been forced to raise capital in response to the carnage in crypto.  Without diving into specifics, one of the currencies blew up.  One of the associated coins (LUNA) fell from the mid-$60’s to less than $0.01 over a few days.  That’s wealth destruction of the highest order, especially for those who went all in and ignored the concept of position and/or portfolio sizing.

On the economic front, inflation numbers (U.S. CPI) came in higher than expected…again (+8.3% YoY  vs. +8.1% expectation).  During the week, Fed Chair Powell referenced Paul Volcker when discussing his plans the fight inflation.  Paul Volcker was Fed Chair in the early 80s when the Fed raised rates to a peak of 20%.

What he didn’t mention that Volcker wasn’t on anyone’s Christmas card list.  Unemployment rose above 10% and the economy went through back to back recessions, not to mention a nasty bear market.

Eventually, market turbulence will subside and a bull market will return.  Your task is to minimize risks until that time comes (i.e. $VIX<20 for more than a few days).

Best To Your Week!

P.S. I mentioned “zooming out” on Elliott Wave last week, and added a longer-term chart below.  I’ve seen a few analysts showing the ABC zigzag pattern completing the Primary [2] wave already.  While that’s possible, it’s a low probability right now, since there’s no divergence in either the RSI or MACD to support it yet.

Technical analysis of weekly SPX prices

SPX Elliott Wave Analysis for the Week of May 15 2022

 


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