Updated Stock Market Outlook – September 20 2021

Yesterday’s stock market outlook touched on a three potential Elliott Wave counts (Cases 1-3), and I mentioned:

For Elliott Wave, the S&P500 is clearly correcting, but what’s not so clear is whether it’s within an uptrend or the start of a downtrend. So the signal remains mixed.

At the moment, I think we’re still in the 5th Intermediate Wave…probably the 3 minor wave…more to come.

Thanks to today’s market action, I received quite a few emails asking:

  1. For the “normal” Case 3 Elliott Wave chart
  2. If Case 3 was still my preferred count after today’s sell-off

The answer in both cases is yes.  Even with today’s sell off, the Intermediate 5, Major 3 count is still valid.

Technical analysis of daily SPX prices

SPX Price Chart for September 20, 2021

If we lay in the Fibonacci levels from the start of the current intermediate wave, we see:

  • Today’s intraday low of 4305 was 2 points away from the 50% retracement level.
  • Today’s close was ~2 points away from the 38% retracement level

The question now is whether tomorrow will be turnaround Tuesday or something else.  If the S&P500 continues to sell-off and head’s below 4257 (the high point for the current Major 1 wave), then the 5th wave scenarios (i.e. Case 1) are much more likely.

COMMENTARY

Today’s U.S. equity market action was ugly, thought the last 30 minutes took out some of the sting.

The narrative behind today’s sell-off was that traders fear spillover effects from the potential collapse of Chinese property developers, particularly a company called Evergrande.  Apparently, Evergrande has ~$300 billion in debt and two of those bills come due this Thursday ($83.5 million  and $36 million).

While they still have 30 days to pay, there’s growing concern they’ll default regardless.  This fear is causing pain for other Chinese property developers: Sinic and Guangzhou R&F saw massive sell-offs themselves. 

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Weekend Stock Market Outlook – September 19 2021

Stock Market Outlook entering the Week of September 19th = Uptrend

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

ANALYSIS
The stock market outlook remains in an uptrend, but that doesn’t mean we can’t see corrective price action.

The S&P500 ($SPX) continues to trade within the upward price channel, but you can plainly see the increase in volatility and recent weakness.

Technical analysis of daily SPX prices

SPX Price Chart for the Week of September 19 2021

The ADX signal maintains the downtrend signal based on the directional indicators, and a weak trend based on the ADX itself.

From a price and volume perspective, the signal is mixed to start the week. Friday’s distribution day has an asterisk, due to the extra trading volumes from option expiration. But even with that distribution day, the total over the past 5 weeks remains low (5).

However, price closed below the 50-day moving average for the first time since June, resulting in the mixed signal. That said, the S&P sits ~4 points below the 50, which is roughly .075%. Let’s see what happens this week.

Technical analysis of daily SPX prices

SPX Price Chart for the Week of September 19 2021

For Elliott Wave, the S&P500 is clearly correcting, but what’s not so clear is whether it’s within an uptrend or the start of a downtrend. So the signal remains mixed.

The RSI(5) pattern didn’t hold up, and neither did the 34-day moving average, indicating a change in market behavior. On the positive side, the RSI shows a positive divergence, so the S&P may be close to bottoming. At the moment, I think we’re still in the 5th Intermediate Wave…probably the 3 minor wave…more to come.

COMMENTARY
The latest CPI report showed inflation moderating in August, as expected. This is the “transitory” aspect everyone is talking about. But this is on the heels of higher PPI numbers (meaning higher prices are still being felt in the supply chain). How much of that increase makes its way to the consumer remains to be seen.

Best to Your Week!

ADDITIONAL ANALYSIS
If you’re interested, here are few more charts for the Elliott Wave Analysis.

Case 1

Technical analysis of weekly SPX prices

SPX Price Chart for the Week of September 19 2021 – Primary 2

If the original count for the “minute” waves was correct, then it’s likely that the Primary 1 just ended, and we’re in first impulse wave of the Primary 2 downtrend. There’s nothing “wrong” with the overall structure of the waves, with the Primary 1 lasting about the same amount of time as the last Cycle 1, Primary 1 (~1.5 years). And the intermediate, major, and minute waves all show long, 5th-wave extensions.

Case 2

Technical analysis of weekly SPX prices

SPX Price Chart for the Week of September 19 2021 – Primary 4

I’ve seen some counts putting the S&P at the end of Primary 3, which would also put us in the first impulse wave of a downtrend; this time a Primary 4. The overall wave structure looks ok in terms of overlaps, but the timing and symmetry of the intermediate waves looks off. And the Primary 1 is too short when compared to the Cycle 1, Primary 1 back in 2009-2011.

Case 3

Technical analysis of weekly SPX prices

SPX Price Chart for the Week of September 19 2021 – Primary 1

If we use the overall structure from Case 2, and take it down a notch, in terms of wave type, the count puts the S&P500 in a minor 4 within the Intermediate 5. The RSI behavior matches up with minor/intermediate wave combinations better than intermediate/primary wave combinations. And the counts are more symmetrical. I still need to work with the first and second waves a bit, but you get the picture.

I know September and October are historically bad months, but a Primary 2 has the potential to take us back towards the Cycle 2 low back in March 2020. That’s somewhere between 3050 and 2200…which means a 30 to 50% bear market. I don’t see Case 1 as a likely option given the current financial environment…let’s put that at 25% probability.

Case 2 would put the S&P500 into a big correction, with a lower bound near 3600 (~19% from last week’s close). Given the financial backdrop at the moment, that seems more plausible than a 30-50% drop, but I think we’ll need to start raising rates, see sustained inflation, and earnings misses before that happens. Plus, the technical indicators (RSI and MACD) don’t appear to support the end of a primary wave. Again, I don’t see this as a likely option either, so call it a 25% chance.

Case 3 seems most probable at the moment. Additional downside from the current correction would be limited compared to Cases 1 and 2. I put the probability on Case 3 around 50%.

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Weekend Stock Market Outlook – September 12 2021

Stock Market Outlook entering the Week of September 12th = Uptrend

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

ANALYSIS
The stock market outlook remains in an uptrend, but last week’s action did some damage. Will this week push it over the edge?

Technical analysis of daily SPX prices

SPX Price Chart for the Week of September 12 2021

The S&P500 ($SPX) starts the week in the middle of a price channel. Before last week, the index tried to break through the upper limit of the bullish price channel 5 days in a row, came up short on each attempt, and is now searching for support

The ADX flipped to bearish after Friday’s drop, putting this signal into a downtrend to start the week.

From a price and volume perspective, this signal remains in an uptrend for now. Price remains above the 50-day, and the index added 1 distribution day and lost a distribution day, so the count stays at 4. Trading volume was definitely to the down size last week, but the price moves (open to close) weren’t significant until Friday.

Technical analysis of daily SPX prices

SPX Price Chart for the Week of September 12 2021

For the Elliott Wave signal, the signal is mixed. The S&P fell below the i-wave high, creating an overlapping wave within the count shown over the past few weeks. Those are a no-no for EW, and it’s been a recurring challenge when trying to label the corrective waves since May. Either the count was incorrect and the 5th-wave is still extending, or the count was correct, and the September 2 was the end of Primary 1.  The good news is that the S&P should confirm it’s direction pretty quickly:

Since May, RSI(5) dipped below a reading of 30 on 4 occasions. Each time that day marked the end of a correction.  Friday marked the 5th time the RSI is below 30, and price hasn’t spent more than a day below the 34-day moving average (where it closed on Friday).

COMMENTARY
So far, September hasn’t disappointed if you were expecting volatility.

It’s truly a mixed message, so use this time as an opportunity to prune your portfolio. Watch your stops sell stocks showing weakness (fundamentally and/or technically), take profits from your winners, and look for investments that are hold up well over the next few weeks.

Best to Your Week!

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Weekend Stock Market Outlook – September 5 2021

Stock Market Outlook entering the Week of September 5th = Uptrend

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

ANALYSIS
The stock market outlook kick’s off September in an uptrend; can it hold through the notoriously volatile month?

The S&P500 ($SPX) opens this week ~3% above the 50-day moving average and ~10% above the 200-day moving average…stop me if you’ve heard this before. The index is riding the upper limit of the bullish price channel we’ve been tracking.

Technical analysis of daily SPX prices

SPX Price Chart for the Week of September 05 2021

All three signals remain green. The ADX is bullish and shows a strengthening trend. The price vs. volume action is stable. 2 distribution days fell off the count, leaving a total of 4 that are evenly distributed over the past 5 weeks.

Technical analysis of daily SPX prices

SPX Price Chart for the Week of September 05 2021

The Elliott Wave remains in the iii-wave uptrend, as does the negative divergence in the RSI. The MACD isn’t giving away any hints on market direction.

COMMENTARY
This week’s post is a bit late; appreciate your patience. We’ve got a shortened trading week on tap, with U.S. stock exchanges closed on Monday for the Labor day holiday.

Typically, September is the S&P500’s worst month in terms of performance, with the second highest level of volatility (October takes that honor). So even if the S&P500 ends on a positive note, it’s probably isn’t going to take the straightest path to get there. Prepare yourself accordingly!

Last Friday, the monthly job data came in WAY below expectations, and a lot of ink was spilled about what that “means”. But a few weeks back, we touched on the concept of stagflation, and what to watch instead of unemployment:

Expect a lot of hyperventilating about the Fed, interest rates, inflation, and employment in the coming weeks, leading up to the Fed meeting in Jackson Hole next month. None of it will be really useful for your decision making.  Instead, take a step back and see the forest for the trees, and watch GDP and consumer spending.

The more interesting, less widely publicized news from Friday was the NY Fed’s decision to “suspend” it’s GDP model due to “data irregularities”. Hopefully those issues are contained to just the New York branch of the Fed, and don’t spill over to other models. The final Q3 GDP numbers, and the initial Q4 numbers, scheduled for release at the end of October (10/27 and 10/29). Remember that July’s retail sales declined 1.1%, worse than the expected drop of 0.3%.

With the S&P500 up 20% or so, year to date, there’s nothing wrong with taking some of that profit and putting it into inflation/stagflation hedges.

Best to Your Week!

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Weekend Stock Market Outlook – August 29 2021

Stock Market Outlook entering the Week of August 29th = Uptrend

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

ANALYSIS
The stock market outlook’s uptrend rallies on, kicking this week off at all time highs.

The S&P500 ($SPX) starts this week in familiar territory; ~3% above the 50-day moving average and ~10% above the 200-day moving average. The index is also poised to break the bullish price channel (or fall back to support if you’re bearish).

Technical analysis of daily SPX prices

SPX Price Chart for the Week of August 29 2021

The ADX flipped back to an uptrend to last Monday, and all three signals show bullish behavior right now. Price/volume has stabilized, with trading volumes below average for much of August.

Elliott Wave remains in an uptrend for now…currently a iii-wave by the looks of it. There’s a negative divergence in the RSI, going back to early July, but that’s more for confirmation than prediction at this point.

Technical analysis of daily SPX prices


SPX Price Chart for the Week of August 29 2021

In late June, the iii-wave lasted 10 days; the current iii-wave is 6 days old. If past it precedence, the S&P is setting up a very interesting week of trading after the long Labor Day weekend.

COMMENTARY
Word on the street is that the U.S. Federal Reserve is done thinking, about thinking about changing their policy stance.

Right now, odds are the Fed announces said policy shift at the September meeting (21st and 22nd), with further odds placed on a December start date for “gradual” tapering of QE measures.

While there’s a lot of talk about inflation, it seems the Fed is still content to think about thinking about a potential shift in short-term interest rates…probably until this time next year.

Of course, all bets are off if we have a market correction of any significance.

Best to Your Week!

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Weekend Stock Market Outlook – August 22 2021

Stock Market Outlook entering the Week of August 22th = Uptrend

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

ANALYSIS
The stock market outlook uptrend continues for another week, but the underlying signals changed a bit.

The ADX flipped to a bearish signal on Tuesday. But 4 distribution days fell off the count for the price/volume signal, moving it back to an uptrend.

Technical analysis of daily SPX prices

SPX Price Chart for the Week of August 22 2021

Elliott Wave remains in an uptrend. If correct, the current i/ii wave looks really similar to the i/ii wave set-up in late May and early June (shape and duration).

Technical analysis of daily SPX prices

SPX Price Chart for the Week of August 22 2021

COMMENTARY
After notching a new all time high last Monday, the S&P500 ($SPX) took a break.  Prices retreated from the channel’s upper trendline, falling towards the 50-day moving average.

The drop was pretty much over before it began, as the index rallied higher into the weekend.  It starts this week ~2% above the 50-day moving average and ~10% above the 200-day moving average.

The reason behind last week’s sell-off was the release of meeting minutes from the last Fed meeting. Or I should say the discussion of tapering bond purchases included in those minutes.

This week could prove just as eventful, as the Fed’s chairman is scheduled to speak at the central-bank symposium in Jackson Hole, Wyoming. You may remember that a similar speech, back in 2013, when comments were made about reducing QE. That speech triggered the so-called “taper tantrum” and the S&P500 sold-off about 6%.

While it definitely IS different this time, that doesn’t really mean much when it comes to the reaction you’ll see in various markets.  There are reasons for the market to continue higher, as well as reasons for it to sell off. Whether buying or selling, let the trades come to you.

Best to Your Week!

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Weekend Stock Market Outlook – August 15 2021

Stock Market Outlook entering the Week of August 15th = Uptrend

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

ANALYSIS
The stock market outlook uptrend remains in place this week, as the S&P500 grinds higher.

The S&P500 ($SPX) continues notching all time highs day after day, but on relatively small price movements. It’s hugging the upper bound of a channel; if that technical pattern continues to hold as it has over the past few months, the probability of a downward move (or at least limited upside) is high.

Technical analysis of daily SPX prices


SPX Price Chart for the Week of August 15 2021

The index starts another week ~3% above the 50-day moving average and >10% above the 200-day moving average.

The ADX uptrend signal continues, with price action beginning to strengthen, similar to late June and early April. For price/volume, 2 days dropped off the count. With another 4 scheduled to drop out after this week, this signal likely returns to an uptrend in next week’s update. And the uptrend signal from Elliott Wave remains in place.

Technical analysis of daily SPX prices

SPX Price Chart for the Week of August 15 2021

COMMENTARY
In the U.S., CPI and PPI numbers came out last week, with both measures showing an increase in prices. The consumer price index came in a bit below expectations, bolstering the narrative that inflation is transitory. The product price index came in a bit above expectations, bolstering the narrative that inflation isn’t transitory.

More than likely, we’ve got two types of inflation at play. The first is waning (i.e. consumer price increases), as reopening is well underway and product shortages from the first pandemic shutdowns have largely been addressed.  The second (producer price increases) is just getting started, reflecting the higher cost of doing business post-pandemic.

And lets not forget the U.S. Senate passed the trillion dollar infrastructure bill last week. It’s sorely needed, and shows that bipartisan support is possible, even if it’s not probable most of the time.

Best to Your Week!

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