Stock Market Outlook entering the Week of March 6th = Downtrend
- ADX Directional Indicators: Downtrend
- Price & Volume Action: Downtrend
- Elliott Wave Analysis: Downtrend
The stock market outlook “downtrend” signal continues, after another week of geopolitical turmoil.
The S&P500 ($SPX) lost 1.3% for the week, and currently sits ~4% below the 50-day moving average and 3% below the 200-day. The index briefly broke above the downward trendline after trading opened on Thursday, but quickly reversed lower.
The ADX signal shows a strong bearish trend. Price and volume continues to show a downtrend as well, with the SPX below the 50-day moving average, several distributions days, and limited signs of accumulation from institutions.
Elliott Wave continues to show a downtrend. The Minor 4 wave may have ended Thursday. That count would be invalidated if the SPX rallies above the Minor 1 low (4451.5). Positive divergences developed in the RSI and MACD; the first “green shoots” we’ve seen this spring. As mentioned last week, the current bearish count is invalidated if the SPX rises above 4450.
Russia intensified its attack on Ukraine last week. Since we live in a connected society now, instability in one region affects us all more acutely than in years past. Most of the world is concerned about the humanitarian impact the conflict, and looking for ways to help. I’ve read stories about people using renting rooms and homes in Eastern Europe using AirBnB, as a way to get quickly get money directly to Ukrainians in need.
On the economic front, the immediate reaction to the war is the mooning of energy and commodity prices. Oil jumped 25%, copper rose ~10%, the Energy Select Sector SPDR Fund (XLE) was up 9.2%.
Utilities (XLU) also “benefited”, but otherwise there’s a LOT of red out there.
The U.S. jobs report showed 678,000 jobs added to the rolls in February; consensus estimates were looking for 390,000. That’s a pretty big beat, and brought the unemployment rate down to 3.8%. U.S. Fed Chairman testified last week too, doing about as much as humanly possible to announce a 0.25% rate hike without actually announcing it.
At this point, a rate hike next week is probably “priced in”, so we shouldn’t see too much volatility when it’s actually announced. But all signs point to the Fed increasing interest rates into an economic slowdown (i.e. GDP falling year over year, which would create more headwinds for markets to overcome.
Investing during the early 2020s has required a different mindset than investing in the 2010s. We’re still dealing with supply chain issues from the pandemic that started 2 years ago, so it’s quite possible that we’re still dealing with the ripple effects of the war long after the shooting stops. It’s not clear when sanctions will be lifted either; they could get worse before they get better.
The only thing that is certain is that our path forward is uncertain. Uncertainty breeds volatility, and volatility is not something we had a lot of in the past decade. You’ll need to revisit your position sizing rules, in terms of how much you’re willing to lose before exiting a trade. You may need to lower your position size to feel comfortably weathering larger swings.
Best To Your Week!