Stock Market Outlook entering the Week of January 7th = Uptrend
- ADX Directional Indicators: Uptrend
- Price & Volume Signals: Uptrend
- Elliott Wave Analysis: Downtrend
ANALYSIS
Happy New Year! The stock market outlook starts 2024 with an uptrend in place, as we look towards Q4 earnings season later this month.
After 9-straight weeks of gains, the S&P500 ($SPX) took a vacation to kick off the year, losing 1.5%. The index now sits ~3.5% above the 50-day moving average, and ~7.5% above the 200-day moving average.
SPX Price & Volume Chart for the Week of Jan 07 2024
The uptrend from late October was broken at the end of the year; not surprising given the size and speed of the rally; ~8% gain per month is an impressive run, and also unsustainable, for an index of large cap equities.
The ADX directional indicators and price/volume are bullish, but weakened significantly over the holiday period. The last post noted an extreme reading in the ADX and the corresponding potential for volatility and a downside potential. The following week provided a massive reversal, along with several down days.
For price/volume, institutions were largely sellers after the start of the year, resulting in distributions days and closes in the lower half of the daily price range. Leading stocks, as measured by the IBD 50 ($FFTY), also took it on the chin to start the year, dropping ~4%.
SPX Elliott Wave Analysis for the Week of Jan 07 2024
For Elliott Wave, both the RSI(5) and MACD showed bearish divergences towards the end of 2023, raising the probability of a decline in prices (which we saw last week). The RSI(5) shows an oversold condition now, but the MACD remains bearish.
COMMENTARY
Last week’s job reports (JOLTs, ADP, NFP) were stronger than expected, which sent rate cut expectations lower, which sent interest rates higher, which sent most equities lower. Be on the lookout for market reaction to CPI/PPI data this week (Thursday / Friday).
Going forward, the Elliott Wave analysis requires some fine tuning, as a bearish signal was in place most of the year, despite some rather large rallies. It’s within EW rules to rally back to prior highs within a longer term “bear-market”, but I’d like to see if there’s a way to capture those moves. Fortunately, the “majority rules” overcomes the short-comings of any single signal.
Best to Your Week and Your Year!
P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.
The Safe Investing Blog 