Stock Market Outlook entering the Week of February 18th = Uptrend

• ADX Directional Indicators: Uptrend
• Price & Volume Signals: Uptrend
• On Balance Volume Indicator: Uptrend

ANALYSIS
The stock market outlook shows an uptrend in place, with the index sitting just below its 52-week high.

The S&P500 ($SPX) fell -0.4% last week, accounting for only the second weekly drop since the end of October.  The index sits ~4% above the 50-day moving average, and 11.5% above the 200-day moving average.

SPX Price & Volume Chart for the Week of Feb 18 2024

Both ADX and price/volume signals show an uptrend in place, within minimal institutional selling.  This week’s update sees the return of a third signal, in the form of the On Balance Volume indicator. In replacing Elliott Wave, I wanted to find a signal that was:

1. Available from free charting software like Stockcharts
2. Aligned with passive capital flows (e.g. the large volume of money that’s passively added to index funds via 401k’s)

Per Investopedia, On-balance volume (OBV) is a technical trading momentum indicator that uses volume flow to predict changes in stock price, which seems to fit the bill.  We’ll see how it holds up when the next correction hits.

COMMENTARY
Higher than expected inflation data was an unwelcome surprise for investors, and sent pundits scrambling for new narratives to justify rate cuts this year.

• January CPI (y/y)
  • • Headline
      • Actual      = +3.1%
      • Prior         = +3.4%
      • Expected = +2.9%
    • Core
      • Actual      = +3.9%
      • Prior        = +3.9%
      • Expected = +3.7%

• January PPI (y/y)
  • Headline
    • Actual      = +0.9%
    • Prior         = +1.0%
    • Expected = +0.6%
  • Core
    • Actual      = +2.0%
    • Prior        = +1.7%
    • Expected = +3.%

Immediate reaction from markets was as expected, with longer-term (>10 year) interest rates spiking higher and equities dropping.  That said, equities recovered nicely from each surprise.

Lost in the shuffle were poor retail sales figures, which were down 0.8% month over month, versus the expected for a decline of 0.1%.

A light week on tap for economic data, to be replaced with FOMC minutes on Wednesday and several speeches from Fed officials Thursday.

U.S. equity markets are closed tomorrow (Feb 19th)for President’s Day.

Best to Your Week!

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

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