Weekend Stock Market Outlook – January 08 2023

Stock Market Outlook entering the Week of January 8th = Downtrend

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

The stock market outlook starts the week in a downtrend, but could swing to an uptrend with a bit more positive momentum.

The S&P500 ($SPX) kicked off 2023 with a win, getting back to the 50-day moving average with a gain of 1.8% during its first week of trading.  Looking back to 2022, the index ended the year down a smidge over 18%.

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of January 08 2023

The ADX reading flipped to bullish and price/volume starts the year mixed, thanks to Friday’s strong price action.  The move qualified as a “follow-through” on the rally attempt that started December 29th. As a reminder, a “follow-through” is defined as:

  • >1.5% price increase
  • Higher than average trading volume
  • 4-10 days after a rally start

Why “mixed” and not an uptrend?  Because the index remains below the 50-day moving average.  A move above that level on heavy volume will change the signal, and could come as soon as Monday.

Technical analysis of daily SPX prices

SPX Elliott Wave Analysis for the Week of January 08 2023

Elliott Wave analysis received an update, but remains bearish.  The set-up looks similar to the late August / early September in terms of the indicators (i.e. counter-trend rally / Minor 2, price near the 34-day moving average, MACD approaching a cross-over).

Technical analysis of weekly SPX prices

SPX Elliott Wave Analysis for the Week of January 08 2023

The longer-term view of Elliott Wave continues to match-up well with the wave count posted last May.

Happy New Year and a warm welcome to 2023!  We’re back in the saddle after some much needed time off.  Hopefully you used the weekly outlook to protect your capital in 2022, or at least limit the damage.  2023 promises to be a harder trading environment than last year, thanks to the coming earnings recession, elevated inflation, and reaction to Fed policy, so buckle up.

Recapping last week’s rally, Friday’s jump coincided with Non-Farm Payroll (NFP) and “ISM Services” reports. First, December Non-Farm Payrolls were higher than expected, with unemployment at a 50-year low, but down a bit from November. Sort of not too hot, not too cold.

Perhaps more importantly, December U.S. ISM Services showed a contraction in December! Per Hedgeye, one specific data point stood out: “New orders (a gauge for future demand) fell close to -20% to 45.2”! Why would a contraction be bullish? Because market participants interpreted that data as a sign the Fed will reverse interest rate hikes soon. Yes, they’re still hoping for a pivot.  And you already know hope is not an investing strategy.

If the Fed is to be believed, a pause is coming at some point this year. But one data point won’t shift the policy, even if it’s in the required direction.

Speaking of the Fed, we’ve got some event risk on tap this week, starting with Fed Chair Powell speaking at the Sveriges Riksbank International Symposium on Central Bank Independence, in Stockholm, Sweden on Tuesday.  Then on Thursday, December CPI data is released prior to market open.

And if that’s not enough, earnings season kicks off this week with heavyweights in the banking sectior: JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C). Factset analysts expect S&P500 companies to report a combined earnings decline of -2.8% for Q4 2022 (i.e. the start of that earnings recession).

Best To Your Year!

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

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