The Safe Investing Blog

Stock Market Outlook entering the Week of September 24th = Downtrend

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

ANALYSIS
The stock market outlook kicks off autumn in a downtrend.

The S&P500 ($SPX) fell 2.9% last week.  As of Friday’s close, the index was ~3.5% below the 50-day moving average, and ~3% above the 200 day moving average.

SPX Price & Volume Chart for the Week of Sept 24 2023

The ADX directional indicators made a bearish cross-over last Monday, re-shifting the signal back to an downtrend. More institutional selling last week confirms the downtrend for price/volume signals.

SPX Elliott Wave Analysis for the Week of Sept 24 2023 – Bearish View

No change in Elliott Wave analysis.  Last week’s downside risk callout was prescient, as the SPX sliced through the short-term support level at 4430 and generating a bearish crossover in the MACD.   The market enters the week right at the next resistance level (4330), with the oversold RSI(5) suggesting a bullish bounce.  Near-term resistance is now at the prior support (4430).

COMMENTARY
The FOMC decided to maintain interest rates at their present levels, reiterating the “higher for longer” message and leaving the door open for future hikes.  The U.S. treasury market increased yields on its own to compensate (2 year through the 30 year).

The shutdown showdown continues in the U.S., as the legislative branch of government showcases its inability to perform basic functions like funding itself.  Watch for signs of U.S. Treasury intervention, which could be used to mitigate short-term market moves.

The United Auto Workers union expanded its labor strike against U.S. automakers.  While the economic impact has been relatively small so far, work stoppages slowly ripple through automotive supply chains (i.e. smaller suppliers), creating damage that lasts well after agreements are reached.

This week brings with it some interesting events, in terms of money flows. It’s the last week in September, meaning both month and quarter end for equities; an important date for funds that measure performance in year-to-date terms. It’s also year-end for some mutual funds, which may drive some profit taking due to the uncertain economic outlook. And we’re entering the black-out period, ahead of Q3 earnings, when companies are not allowed to buy-back their stock.

Last but not least, August PCE data is released Friday pre-market.

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

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

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.

Stock Market Outlook entering the Week of September 17th = Downtrend

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

ANALYSIS
The stock market outlook remains in a downtrend, heading into the week with a mix of signals.

The S&P500 ($SPX) fell 0.2% last week.  As of Friday’s close, the index was ~1%below the 50-day moving average, and ~6% above the 200 day moving average.

SPX Price & Volume Chart for the Week of Sept 17 2023

The ADX directional indicators created a bullish cross-over last Monday, shifting the signal back to an Uptrend.  But, just like last week, they’re on the verge of crossing back as of Friday’s close; this time to a downtrend or bearish signal.

Price/volume remains in a downtrend with the index below the 50-day moving average and a high number of distribution days (8). The SPX hasn’t been able to confirm the latest rally attempt with high volume buying, and we’re well past the 4-10 day timeframe.  Friday’s quarterly option expiration skewed trading volume, but the index sliced through the 50-day nonetheless.

Elliott Wave analysis remains mixed, but both potential counts show higher risk to the downside.

SPX Elliott Wave Analysis for the Week of Sept 17 2023 – Bullish Count

The current bullish view shows a Minor C in its 3rd wave, with the possibility of either a 3 or 5 Minute wave downtrend.

The bearish count has several possible wave combinations for the current 3-wave or 5-wave down pattern (Minor 3 or Minor C).  For the Minor C wave, a 3 or 5 wave Minute pattern is also possible, aligning with the bullish count above.

Short-term resistance in both cases remains at 4541; first level of support is 4430.

SPX Elliott Wave Analysis for the Week of Sept 17 2023 – Bearish Count

COMMENTARY
Per last months CPI data, consumers are still experiencing the impact of high inflation, thanks to higher energy prices.  Producer prices (PPI) are feeling similar effects.

• August CPI(y/y)
  • Headline: +3.7% vs. +3.2% in July
  • Core: +4.3% vs. +4.7% in July
• August PPI (y/y)
  • Headline: +1.6% vs. +0.8% in July
  • Core: +2.2% vs +2.4% in July

Retail sales made headlines last week, showing an increase month over month. But the real story came in the form of year over year data, at +2.5% Y/Y, which is slightly lower than the +2.6% reading in July. If you were to adjust for inflation retail sales actually fell ~2% Y/Y.

These data points will feed into the Fed decision on whether or not to raise interest rates, ahead of the FOMC meeting on Wednesday. The price behavior of the bond market (as well as “Fed Futures” data) says the Fed won’t hike rates. The price behavior of the U.S. dollar shows a bit more skepticism.

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

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

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.

Stock Market Outlook entering the Week of September 10th = Downtrend

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

ANALYSIS
The stock market outlook remains in a downtrend, with 2 of the 3 indicators swinging back to bearish signals.

The S&P500 ($SPX) fell 1.3% last week.  As of Friday’s close, the index was ~0.5%below the 50-day moving average, and ~7% above the 200 day moving average.

SPX Price & Volume Chart for the Week of Sept 10 2023

The ADX directional indicators swung back to bearish mid-week, but are on the verge of crossing back to bullish as of Friday’s close.

Price/volume shifted back to a downtrend, after dropping below the 50-day moving average on increasing volume.

SPX Elliott Wave Analysis for the Week of Sept 10 2023 – Bullish Count

Elliott Wave analysis remains mixed, although the bullish count required some adjustment after last week’s movement.  The index dropped below short-term support (4483), increasing the probability of more downside to complete the Minor 4 wave.  Short-term resistance is now 4541, while the first level of support is 4335.

SPX Elliott Wave Analysis for the Week of Sept 10 2023 – Bearish Count

The bearish count completed its second wave last Friday, after retracing more than 61.8% of the first wave; could be a Minor 2 or a Minor B depending on the length of the downtrend.

COMMENTARY
Traders returned from summer holiday last week, and found themselves in familiar, albeit uncomfortable, territory.

On the fiscal front, investors in the U.S. will be hearing a lot about government funding (dis)agreements over the next few weeks (just like May/June).  This time, rather than a debt ceiling, Congress needs to agree on a continuing resolution, or “CR”, to keep the lights on.

Most federal agencies are funded on an annual basis by appropriations.  However, none of the appropriation bills have been enacted for the next fiscal year, which starts October 1.  CR’s are stopgaps, used to give lawmakers time to enact appropriations for the full year, while avoiding government shutdowns due to lack of funds.

Markets and pundits will digest the latest round of economic data this week, including August CPI (Wednesday), August PPI (Thursday) and retail sales (Thursday).  All the while, you’ll get to see the latest tea-leaf reading regarding another U.S. FOMC rate hike.  Friday is quarterly options expiration, so watch for higher trading volumes if/when institutions shift their positioning for the fourth quarter.

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

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

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.

Stock Market Outlook entering the Week of September 3rd = Downtrend

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

ANALYSIS
The stock market outlook remains in a downtrend as we start September trading.  Despite last week’s positive price performance, only one signal shifted to an uptrend; another shift is needed.

The S&P500 ($SPX) gained 2.5% last week.  As of Friday’s close, the index was ~1% above the 50-day moving average, and ~8.5% above the 200 day moving average.

SPX Price & Volume Chart for the Week of Sept 03 2023

The ADX directional indicators turned bullish last week, after the S&P500 blasted through the 50-day moving average on Tuesday.  Price/volume only shifted to mixed, however, as trading volume didn’t confirm the bullish move.  A move on above average volume is needed to confirm the rally and shift this indicator.

SPX Elliott Wave Analysis for the Week of Sept 03 2023 – Bullish Wave Count

Elliott Wave shows at least a 3-wave rally since the Aug 18th bottom.  Short-term support for the current bullish count is 4483, with the MACD cross-over providing support to the rally.  Resistance for the bearish count is 4607, with the overbought RSI(5) providing support for a continued correction.

SPX Elliott Wave Analysis for the Week of Sept 03 2023 – Bearish Wave Count

COMMENTARY
A solid rally, even if trading volume was less than desired.  Last week was the final trading week of the summer season, so most trading desks were lightly staffed.  Institutional traders return, in force, on Tuesday, so expect trading volume to get back to normal starting next week.

Last week’s economic data was a mixed bag; employment growth is slowing, but remains positive, much like inflation.

JOLTS data showed a decline in the number of job openings, with “only” 8.8M in July (down from 9.2M).  Take this survey with a grain of salt; it’s directionally correct, but that’s about it.  NFP data showed an increase of 187k, higher than the 170k forecast.

The second revision to Q2 GDP was released, trimming the prior estimate from 2.4% to 2.0%.

PCE for July showed a small acceleration in the Y/Y comparisons (M/M as well, but those are less important).

• Headline PCE = +3.3% Y/Y  (June  = +3.0% Y/Y)
• Core PCE = +4.2% Y/Y  (June = +4.1% Y/Y)

But higher inflation wasn’t the narrative circulating Wall Street however.  Instead, talking heads focused on May, June, July PCE readings, specifically the annualized average, to make the case for no more interest rate hikes.  Annualizing the 3 months puts PCE at 2.1% (Core PCE at 2.9%), which is close enough for most pundits to declare game over for inflation.

The U.S. stock markets are closed Monday for the Labor Day holiday.

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

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

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.

Stock Market Outlook entering the Week of August 27th = Downtrend

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

ANALYSIS
The stock market outlook starts the last week of August in a downtrend.

The S&P500 ($SPX) gained 0.8% last week.  As of Friday’s close, the index was ~1% below the 50-day moving average, and ~6% above the 200 day moving average.

SPX Price & Volume Chart for the Week of Aug 27 2023

The ADX directional indicators and price/volume stay bearish this week, after the index ran into resistance at the 50-day moving average Thursday.  Trading volumes declined for most of August, coinciding with the summer holiday season in the U.S. and Europe.

Elliott Wave remains mixed.  There’s a completed wave as of August 18, but the wave structure is difficult to see.

SPX Elliott Wave Analysis for the Week of Aug 27 2023 – Bearish Count

At first glance, a 5-wave pattern can been seen, suggesting  more downside ahead.  The bullish count could show 3 waves down, retracing 50% of Minor 3 to complete Minor 4.  Short-term support is now 4335, while the key resistance level remains 4607.

SPX Elliott Wave Analysis for the Week of Aug 27 2023 – Bullish Count

COMMENTARY
Fed Chair Powell’s Jackson Hole speech was a bit longer than last year’s, but the message was similar: inflation remains above target and more “work” is needed.  He conceded that inflation is heading in the right direction, but the FOMC is prepared to hold and/or raise rates further if appropriate.

Last week’s undercard was a non-event: the BRICs summit didn’t deliver any news of a new currency this time around.  So much for “word on the street”.

This week’s important economic data includes JOLTS on Tuesday, the second revision of Q2 GDP on Wednesday, July PCE on Thursday, and Non-Farm Payrolls on Friday.

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

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

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.

Stock Market Outlook entering the Week of August 20th = Downtrend

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

ANALYSIS
The stock market outlook underwent a trend change last week, shifting to a downtrend. Since the turning bullish on May 17th, the outlook captured 6% of the latest rally.

The S&P500 ($SPX) fell 2.1% last week.  As of Friday’s close, the index was ~2% below the 50-day moving average, and ~6% above the 200 day moving average.

SPX Price & Volume Chart for the Week of Aug 20 2023

The ADX directional indicators crossed on Wednesday and flipped the signal to a bearish trend.

Price/volume also shifted to a downtrend on Wednesday, after failing to find support at the 50-day moving average on Tuesday and picking up a few distribution days along the way.

SPX Elliott Wave Analysis for the Week of Aug 20 2023

Elliott Wave is mixed, with both counts working through their first down wave. The RSI(5) shows the SPX in oversold territory, although the next wave should be a brief, counter-trend rally.  Key support and resistance levels remain unchanged at 4169 and 4632.

COMMENTARY
A trend change in the stock market outlook shifts strategy from offense to defense, meaning it’s time to prune your portfolio.  Take profits from investments that have performed well during the recent rally, such as the energy and industrial sectors.  Those proceeds can be used in the next rally, when a lagging sector such as Utilities or Staples is in favor.

With money market funds (e.g. $FDRXX, $SNVXX, etc.) yielding ~5%, there’s no need to place large bets right now.  Better to collect dividends while waiting for prices to tell you when to redeploy.

This week’s main event is the U.S. Federal Reserve’s 2023 Economic Policy Symposium in Jackson Hole (August 24 to August 26). The undercard is the BRICS Summit, set to take place in South Africa from August 22nd to August 24th.

Word on the street is that Brazil, Russia, India, China, and South Africa may unveil a new, gold-backed, digital currency during the summit. A new currency would allow member nations to settle transactions with one another without using the U.S. dollar. At this point in time, the USD’s status as the world’s reserve currency wouldn’t be threatened, but something to keep an eye on for future developments.

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

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

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.

Stock Market Outlook entering the Week of August 13th = Uptrend

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

ANALYSIS
The stock market outlook maintains an uptrend, despite the recent decline.

The S&P500 ($SPX) fell 0.3% last week.  As of Friday’s close, the index was 0.5% and 8.5% above the 50 and 200 day moving averages, respectively.

SPX Price & Volume Chart for the Week of Aug 13 2023

The ADX narrowly avoided a bearish signal last week (Tuesday & Wednesday).

Price/volume action was uneventful last week, as trading volume faded throughout the week.  The signal remains in an uptrend for now, with the index posed to test the 50-day moving average over the next week or two.

Elliott Wave remains mixed; both counts continue to work through their first down wave, after completing the rally on August 27 at 4607.  Key support and resistance levels remain unchanged at 4169 and 4632.

COMMENTARY
Based on the current state of the 3 market outlook signals, I’m expecting a period of choppy, sideways price action (i.e. consolidation).  Watch trading volume for signs of institutional buying and/or selling.

Inflation increased slight in July.  The Consumer Price Index (CPI) rose +3.2% y/y,  which was a slight increase from June’s 3.0% y/y increase.  Core CPI (CPI less food & energy) rose 4.7% y/y.  The Producer Price Index (PPI) was up +0.8% Y/Y, which was a slight increase from Junes +0.2% Y/Y reading.  Core PPI (PPI less food, energy, and trade services) rose +2.7% y/y.

Earnings season is winding down for the S&P500, with 90% of companies reporting 2nd quarter earnings. Per Bloomberg:

• Sales growth was up +0.4% y/y
• Earnings growth was down -8.3% y/y

That’s the 3rd straight quarter of negative earnings growth (i.e. that pesky earnings recession mentioned in previous posts).   Many investors are surprised by the EPS decline, since financial media has painted a different picture.  Those headlines are focused on performance versus expectations, in which case ~80% of the earnings reports beat analysts EPS estimates.

How is this possible?   Because analysts have lowered their estimates during the year, based on company guidance.  Then, companies report better than expected earnings, with help from one-time adjustments / non-GAAP EPS calculations.

Maybe that’s why Factset recently reported: “S&P 500 Companies See Largest Negative Price Reaction to Positive EPS Surprises Since 2011“.

Analysts now expect 3rd quarter earnings growth to break-even (0%), and then jump to +8% y/y in the 4th quarter.  The increase is not unexpected, since analysts estimate year-end S&P500 targets based on valuation (price/earnings multiples).  EPS during the first half of the year underperformed, so EPS for the second half of the year must overperform in order for the S&P500 to reach analysts’ target levels.

Best to Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

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

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.