Weekend Stock Market Outlook

Stock Market Outlook entering the Week of May 31st = Uptrend

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

ANALYSIS
The stock market outlook remains in an uptrend to start off June.  The ADX and price/volume are both in an uptrend, and Elliott Wave showing a “downtrend”.

Technical analysis of daily SPX prices

2020-05-31-SPX Trendline Analysis-Daily

The S&P500 ($SPX) sits just about 10% above the 50-day moving average, and just abaove the 200 day moving average. The ADX is still showing a weak trend, but we have seen several days of accumulation recently.

Technical analysis of daily SPX prices

2020-05-31-SPX Elliott Wave Analysis-Daily

Elliott Wave shows the S&P500 remains in a corrective pattern (an expanded flat), with the May low as Minor A. Targets for completing Minor B were between 2999 and 3017, and the S&P hit 3068 on Thursday (shown below). If this is the case, targets for Minor C would be between 1.618 of Minor A and 1.618 of Minor B…both of which happen to be 2580.

Technical analysis of daily SPX prices

2020-05-31-SPX Elliott Wave Analysis-Daily-Minor B

Of course, we can’t predict what the stock market will do; a price above 3071 this week and we’ll need to adjust the pattern and targets. It’s also possible for a double of triple three pattern to emerge, which would stretch out the Intermediate B wave over the summer.

COMMENTARY
Stocks performed well last week.  The European Commission proposed a €750 billion recovery fund..it still needs to be approved by all EU members, which is no small task.  Closer to home, U.S. GDP is forecast to decline ~40% in the second quarter (on an annual basis).  That’s the largest quarterly decline since the Great Depression!

In Steve Blumenthal’s “Trade Signals / On My Radar” post this week, he summarized  Lacy Hunt’s presentation from the Strategic Investment Conference. I found the insights on stimulus spending interesting.

Basically, all the stimulus (aka debt) that we’ve taken on is merely for survival, not for productive uses.  It’s an attempt to fill the gap in production while the economy was shut down. As our economies reopen, we’ll have to see how much of that gap we can fill without help from the Fed.

And filling that gap is not guaranteed.  Consumer spending accounts for almost 66% of economic growth in the U.S.  So any recovery will be linked to “healthy” consumers (financially, physically, and behaviorally).

  • Will you feel financially secure enough to take out a loan for a car or a house?
  • Will banks feel comfortable enough to lend to you?  And at what interest rate?
  • Will you feel financially and physically safe enough to go to restaurants, take the subway, grab an Uber/Lyft, or go to a football game?  As often as you did last year?
  • Will businesses feel secure enough to take out new loans to expand?  Or will they focus on paying off debt?

All these questions must be answered for Wall Street and Main Street to discover the new “normal”.  This week’s step in that journey is the May jobs report, which comes out Friday!

Steve followed that up with some truly amazing stats on S&P500 performance.  Since 12-31-2014, the market capitalized performance of S&P stocks is as follows:

  • S&P 500 is up ~45%
  • FANG stocks are up ~400% (Facebook, Amazon, Netflix, and Google/Alphabet)
  • S&P 500 Index w/o FANG stocks is up ~35%

Based on those percentages, if you invested $10,000 in at that time, today you’d have:

  • $13,512 (S&P w/o FANG)
  • $14,531 (S&P 500)
  • $40,390 (just FANG)

Steve goes on to say:

The point here is that just four stocks are driving returns of the major indices – especially the cap weighted indices. At the end of April 2020, FANG stocks represented 16.38% of the S&P 500 Index (cap weighted index). Add in Microsoft and Apple and together the FANMAG stocks represent 21.38% of the index. It is the large over-concentration in just a few names that is cause for concern.

This is another reason that the “stock market” seems disconnected from all the chaos that we read in the news.  As long as FANMAG stocks perform well, under performance in other areas is muted.  On the flip side, selling in these names will also have a disproportionate effect on S&P500 performance.  Something to keep in mind as you evaluate your holdings.

Best to your week!

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Weekend Stock Market Outlook

Stock Market Outlook entering the Week of May 24th = Uptrend

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

ANALYSIS
The stock market outlook flipped to an uptrend last week (Monday) with another change in the ADX signal. Price/volume remained in an uptrend, while the Elliott Wave downtrend remains in place…it’s just a REALLY shallow one.

Technical analysis of daily SPX prices

2020-05-24-SPX Trendline Analysis-Daily

The S&P500 ($SPX) sits ~8% above the 50-day moving average, and just below the 200-day moving average (~3,000). The directional indicators flipped again, but the overall ADX still shows a VERY weak trend, as it has been for the entire month.

The downward trendline fell to last Monday’s strong advance, so there’s a new uptrend traced off the recent lows.  But prices didn’t make much progress the rest of the week.

Technical analysis of daily SPX prices

2020-05-24-SPX Elliott Wave Analysis-Daily

For Elliott Wave, the S&P500 has been working through an intermediate B wave for all of May.  A B-wave is expected to retrace a lot of the A-wave.  So far, that hasn’t really happened.  I’ve seen three potential counts:

  1. B-wave completed on May 14th
  2. B-wave is ~halfway complete
  3. B-wave is just getting started

Scenario 1 would mean a new uptrend (C-wave), with the first level of resistance near the 3140 price level (79% retracement).  Scenarios 2 and 3 mean the S&P could start the next leg of the downtrend at any time…maybe hit ~3,000 first (coincidentally the 200 day moving average).  Odds favor the B-wave is still in place, so this signal is still in a downtrend for now.

COMMENTARY
Stocks jumped on reopening activities and positive news related to COVID19 vaccine trials.  Not to be outdone, the U.S. Senate grabbed headlines by introducing a bill that could require Chinese companies to delist from U.S. stock exchanges.

The Strategic Investment Conference wrapped up last week, and the final sessions did not disappoint.  I’ve got a lot of listening/watching to do; so much information!  If even half of the opinions turn out to be true, we’re in for a very interesting period in history!

Short week coming up, with U.S. exchanges closed for Memorial Day.

Best to your week!

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Weekend Stock Market Outlook

Stock Market Outlook entering the Week of May 17th = Downtrend

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

COMMENTARY
The stock market outlook flipped to a downtrend last week with a change in the ADX signal.  Elliott Wave was already in a downtrend, but price/volume is still showing an uptrend in place.

Technical analysis of daily SPX prices

2020-05-17-SPX Trendline Analysis-Daily

The S&P500 ($SPX) ran into some distribution to start the week, and then attempted to recover.  The ADX  directional indicators flipped, but the overall trend is VERY weak at the moment.  The downward trendline managed to survive another week, again just barely, with the SPX crossing the line during the week but unable to close above it.

Technical analysis of daily SPX prices

2020-05-17-SPX Elliott Wave Analysis-Daily

For Elliott wave, the S&P500 is rangebound between the 50% and 61.8% level retracement levels, but may have started the minor C-subwave of the intermediate B-wave.  It’s hard to tell, given the price action on Thursday an Friday.  I expect the intermediate B-wave that to take us down to 2500-2600, but this market is doing anything but what is expected, so stay nimble!

Also, my labeling scheme was confusing some readers.  I tried to mirror the structure used for OEW, but realized that can be confusing if you haven’t studied OEW.  Since Tony’s blog isn’t being updated, I figured it’s time to just use traditional Elliott Wave labeling (e.g. Tony used “Major” waves, Elliott Wave doesn’t, etc.).

Technical analysis of weekly SPX prices

2020-05-17-SPX Trendline Analysis-Weekly

Let’s see…what happened last week:

  • April data for retail sales and industrial production showed the steepest declines on record in the U.S. <– No surprise, given the lockdowns
  • The U.S. experienced a bought of deflation in April, as measured by the Consumer Price Index (CPI) <– No surprise, given oil prices
  • Tensions between the U.S. & China escalated with the U.S.’s move to block semiconductor shipments to Huawei <– A bit of a surprise, given the state of the economy

I joined the Strategic Investment Conference last week, hosted by Mauldin Economics this year.  I’ve wanted to attend for a long time, and the fact that it is virtual this year provided a great opportunity.  Unfortunately, I didn’t get to attend all of the presentations, so I’ll have to review the transcripts this week.  But the ones I did attend were excellent.

So even as the stock market is telling you that it is all figured out, I can assure you, what we face at this very moment is a highly uncertain economic future, and unfortunately, most of the longer-term risks are to the downside, not the upside. We are in a depression, not a recession. It’s a depression. I didn’t say the Great Depression; it’s a depression.”

“And I think the dynamics of a depression are different than they are in a recession, because depressions invoke a secular change in behavior. Classic business cycle recessions are forgotten about within a year after they end. At a minimum, depressions entail a prolonged period of weak economic growth, widespread excess capacity, deflationary pressure and a wave of bankruptcies.

– David Rosenberg

You can read a summary of Rosenberg’s presentation at Advisor Perspectives.  Ben Hunt’s discussion of political narratives and their use of models was thought provoking, and reflects my concerns with “single sourced” news.  The presentation concerned the narratives used for the COVID-19 crisis.  It’s been interesting to watch narratives change over the past few months, and how people flip-flop based on their needs. You can read a review of Hunt’s presentation at CMG Wealth.

Politics aside, reading between the lines is important for investors, because our decisions are based on all kinds of different models.  One tip/trick that I’ve used over the years:  skip over adverbs (always, never, fairly, unfairly) and adjectives (huge, tiny).  These words are relative; what’s fair for you may not be fair for me.  By removing them when you read a sentence, you boil the sentence down to the subject and verb; the heart of the message.  Then you can make your own judgement. Another tip/trick: don’t do this when you reading for fun or fiction; it makes for some very boring reading!

Best to your week!

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Weekend Reading – Personal Finance, Money Management, and Investing

Personal Finance

Money Management

Investing

Odds and Ends

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Weekend Stock Market Outlook

Stock Market Outlook entering the Week of May 10th = Uptrend

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

COMMENTARY
The stock market outlook continues into the second week of May in an uptrend. The ADX and price/volume signals show an uptrend, while Elliott Wave indicates a downtrend.

Technical analysis of daily SPX prices

2020-05-10 – SPX Trendline Analysis – Daily

The S&P500 ($SPX) spent last week recovering from the prior week’s sell-off. No real change in the ADX or price/volume story. The downward trendline also remains in place, just barely, with the SPX starting the week right on the line.

Technical analysis of daily SPX prices

2020-05-10-SPX Elliott Wave Analysis-Daily

For Elliott wave, the S&P500 is challenging the 61.8% level retracement level again.

Technical analysis of daily SPX prices

2020-05-10-SPX Elliott Wave Analysis-Daily-b-wave

Last week, we discussed the possibility of a flat or triangle creating a shallow price decline rather than a zigzag. If Monday’s low was really the end of a subwave, then odds decrease for the plotted zigzag price targets. I’ll leave them in for this week, and lets see what market prices have in store for us.

And here’s the weekly view, going back to the last recession, for some context.

Technical analysis of weekly SPX prices

2020-05-10-SPX Trendline Analysis-Weekly

The April jobs report came and went, showing 20.5 million jobs were lost. Investors reacted with a shrug, seeming to focus more on the fact that 80% of the job losses were reported as temporary layoffs. The disconnect between Main Street and Wall Street seems to grow each day, with job/income losses in stark contrast with rising stock prices and shareholder value. Not to mention the fact that we’re at the end of a long-term debt cycle.

That’s not a recipe for success…that’s a recipe for revolt! Hopefully, cooler heads and leaders prevail.

What remains to be seen is whether the job losses lead to prolong reductions in consumer spending. Shutting down businesses means we CAN’T spend, but opening them back up doesn’t mean that we WILL spend. In the U.S., consumer spending makes up 70% of the economy, and will determine the strength of the recovery. The stock market seems to be predicting a strong recovery, with the S&P sitting ~15% off its all time high already!

As always, let price be your guide and respond accordingly.

Best to your week!

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Weekend Reading – Personal Finance, Money Management, and Investing

Personal Finance

Money Management

Investing

Odds and Ends

Posted in Investing, Money Management, Personal Finance | Tagged , , , ,

Weekend Stock Market Outlook

Stock Market Outlook entering the Week of May 3rd = Uptrend

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

COMMENTARY
The stock market outlook starts May in an uptrend. The ADX and price/volume signals are bullish, while Elliott Wave indicates a downtrend.

Technical analysis of daily SPX prices

2020-05-03 – SPX Trendline Analysis – Daily

The S&P500 ($SPX) looked ready to take on the 200-day moving average last week, but ran out of gas Friday.  Another day like that and we’ll see the ADX crossover and be back in a confirmed downtrend thanks to the Elliott Wave signal.  The good needs is that the overall ADX is still below 25, so any pullback should be really weak and/or short-lived.  Not a lot of institutional selling either.

The downward trendline I laid in last week was broken on Monday.  After the weak  price action Thursday and Friday, I think the resistance is still there, so I pivoted it to Wednesday’s high.

Technical analysis of daily SPX prices

2020-05-03 – SPX Elliott Wave Analysis – Daily

For Elliott wave, the S&P500 pulled away from the 50% retracement level (~2792), only to run into resistance at the 61.8% level.

I made a few mistakes in my wave counts, which resulted in the wrong price targets and an incorrect signal.  Fortunately, the other two signals were correct and majority rules.  But it happens with Elliott Wave, particularly when new trends are getting started.

After some additional analysis, we just finished the a-subwave of the B-wave, and are now starting the b-subwave. Since the a-wave was 5 waves, we can expect the b-wave to be 3 waves. Typically, the b-wave of a zigzag retraces 50-79% of the a-Wave The a-wave started at 2191 and ended at 2955, for a total move of 764.

  • 50% * 764 = 382
    • 2955 – 382 = 2573
  • 61.8%* 764 = 472
    • 2955 – 472 = 2483
  • 79% * 764 = 604
    • 2955 – 604 = 2351
Technical analysis of daily SPX prices

2020-05-03 – SPX Elliott Wave Analysis – Daily – b-wave

So the targets for completion of the b-wave are between 2573 and 2351.  If the b-wave pattern is a flat or a triangle (not drawn), I’d expect the downtrend to be shallower; may not even get to the 50% level.

Reopening the economy was on everyone’s mind last week; will they, won’t they, and if so, how much.  In the mean time, the stock market continues higher, with the S&P500 having it’s best month since 1987.  Billions of dollars of stimulus doesn’t hurt…for now.  When that bill comes due, it may be a different story.

The Fed didn’t change rates last week, and committed to keep them near zero until employment recovers and we see some inflation.

More companies stopped providing full year guidance.  More companies cut their dividends; Royal Dutch Shell for the first time since World War II!  Something for income investors to consider if they’re salivating over yields in the oil and gas industry.

As discussed companies with strong balance sheets and high demand for their products in a “stay at home” economy are doing well, relatively speaking of course.

Some balance sheet metrics to look for include:

  • Debt to Equity Ratio < 1.0 – New assets can be purchased with equity (vs. debt)
  • Cash to Debt Ratio > 1.5 – Cash from operations can cover debts
  • Quick Ratio > 1.0 – Assets (w/o inventory) are larger than debts
  • Current Ratio > 1.0 – Current assets are larger than current liabilities

Best to your week!

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