Weekend Stock Market Outlook – December 04 2022

Stock Market Outlook entering the Week of December 4th = Uptrend

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

The stock market outlook stays in an uptrend, with the same characteristics mentioned last week; an aging, counter-trend rally with weak signal strength.

The S&P500 ($SPX) rose 1.1% last week, closing just above the 200-day moving average.  The index is now ~7% above the 50-day and starts the week at a long-term trendline dating back to mid-January.

Technical analysis of daily SPX prices

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

The ADX and price & volume continue remain bullish but weak (ADX @ 20, trading volume below average).  The SPX registered 1 distribution day over the past 5 weeks, which would be great if trading volumes weren’t so low.

Elliott Wave analysis still shows the SPX in the final stage of the Intermediate (X), counter-trend rally, but the Minute [v] wave count from last week required adjustment because of how far the market sold off Monday and Tuesday.  As of today, the Minutte waves appear to form an ending diagonal pattern (3-3-3-3-3).

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of December 04 2022

It’s also possible that the entire Minor C wave is an ending diagonal, which would cause a relabeling of the Minute waves. That pattern needs a few more days before it can be confirmed (i.e. a test of the 4000 price level).

Just like last year, an early December speech by the Fed chair sent investors scrambling.  Only this time around, the bears ran for cover.  There was nothing new in the speech verses Powell’s prior statements.  It’s investors who have lowered the bar for what passes as bullish commentary. Chairman Powell confirmed a 0.5% rate hike in December, along with the “higher for longer” narrative, while conceding that Fed policy decisions show up in data with a lag.

Thursday’s PCE data showed that the Fed’s favorite inflation measure remained high in the month of October, although it did retreat from September’s increase.

Year over Year Change (%)
Jun Jul Aug Sept Oct
PCE 7.0 6.4 6.2 6.3 6.0
Core PCE 5.0 4.7 4.9 5.2 5.0

The personal savings rate for October also came out Thursday, showing a drop to 2.3%, which is the second lowest reading since 1959 (July 2005 was the all time low at 2.1%).

Last but not least, Friday’s payroll data surprised to the upside, on both employment and wages, despite recent layoffs in the tech sector.

In summary, rate hikes decreased inflation readings since the June peak, and energy prices also retreated.  Consumers maintained spending levels using a combination of personal savings and credit card debt.  And overall unemployment remains near historical lows. So far, that sounds a lot like a soft landing for main street, which also shows up in continued top-line growth for Wall Street (i.e. corporate revenue).

That said, profit margins (earnings) shrank as companies accounted for higher costs for raw materials, debt financing, and labor.  Those costs will ultimately determine the type of earnings recession we experience in 2023.

Best To Your Week!

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Sources: Bloomberg, CNBC, Federal Reserve Bank of St. Louis, Hedgeye, U.S. Bureau of Economic Analysis, U.S. Bureau of Economic Analysis

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