The Safe Investing Blog

Stock Market Outlook entering the Week of September 5th = Uptrend

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

ANALYSIS
The stock market outlook kick’s off September in an uptrend; can it hold through the notoriously volatile month?

The S&P500 ($SPX) opens this week ~3% above the 50-day moving average and ~10% above the 200-day moving average…stop me if you’ve heard this before. The index is riding the upper limit of the bullish price channel we’ve been tracking.

SPX Price Chart for the Week of September 05 2021

All three signals remain green. The ADX is bullish and shows a strengthening trend. The price vs. volume action is stable. 2 distribution days fell off the count, leaving a total of 4 that are evenly distributed over the past 5 weeks.

SPX Price Chart for the Week of September 05 2021

The Elliott Wave remains in the iii-wave uptrend, as does the negative divergence in the RSI. The MACD isn’t giving away any hints on market direction.

COMMENTARY
This week’s post is a bit late; appreciate your patience. We’ve got a shortened trading week on tap, with U.S. stock exchanges closed on Monday for the Labor day holiday.

Typically, September is the S&P500’s worst month in terms of performance, with the second highest level of volatility (October takes that honor). So even if the S&P500 ends on a positive note, it’s probably isn’t going to take the straightest path to get there. Prepare yourself accordingly!

Last Friday, the monthly job data came in WAY below expectations, and a lot of ink was spilled about what that “means”. But a few weeks back, we touched on the concept of stagflation, and what to watch instead of unemployment:

Expect a lot of hyperventilating about the Fed, interest rates, inflation, and employment in the coming weeks, leading up to the Fed meeting in Jackson Hole next month. None of it will be really useful for your decision making.  Instead, take a step back and see the forest for the trees, and watch GDP and consumer spending.

The more interesting, less widely publicized news from Friday was the NY Fed’s decision to “suspend” it’s GDP model due to “data irregularities”. Hopefully those issues are contained to just the New York branch of the Fed, and don’t spill over to other models. The final Q3 GDP numbers, and the initial Q4 numbers, scheduled for release at the end of October (10/27 and 10/29). Remember that July’s retail sales declined 1.1%, worse than the expected drop of 0.3%.

With the S&P500 up 20% or so, year to date, there’s nothing wrong with taking some of that profit and putting it into inflation/stagflation hedges.

Best to Your Week!

Stock Market Outlook entering the Week of August 29th = Uptrend

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

ANALYSIS
The stock market outlook’s uptrend rallies on, kicking this week off at all time highs.

The S&P500 ($SPX) starts this week in familiar territory; ~3% above the 50-day moving average and ~10% above the 200-day moving average. The index is also poised to break the bullish price channel (or fall back to support if you’re bearish).

SPX Price Chart for the Week of August 29 2021

The ADX flipped back to an uptrend to last Monday, and all three signals show bullish behavior right now. Price/volume has stabilized, with trading volumes below average for much of August.

Elliott Wave remains in an uptrend for now…currently a iii-wave by the looks of it. There’s a negative divergence in the RSI, going back to early July, but that’s more for confirmation than prediction at this point.

SPX Price Chart for the Week of August 29 2021

In late June, the iii-wave lasted 10 days; the current iii-wave is 6 days old. If past it precedence, the S&P is setting up a very interesting week of trading after the long Labor Day weekend.

COMMENTARY
Word on the street is that the U.S. Federal Reserve is done thinking, about thinking about changing their policy stance.

Right now, odds are the Fed announces said policy shift at the September meeting (21st and 22nd), with further odds placed on a December start date for “gradual” tapering of QE measures.

While there’s a lot of talk about inflation, it seems the Fed is still content to think about thinking about a potential shift in short-term interest rates…probably until this time next year.

Of course, all bets are off if we have a market correction of any significance.

Best to Your Week!

Stock Market Outlook entering the Week of August 22th = Uptrend

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

ANALYSIS
The stock market outlook uptrend continues for another week, but the underlying signals changed a bit.

The ADX flipped to a bearish signal on Tuesday. But 4 distribution days fell off the count for the price/volume signal, moving it back to an uptrend.

SPX Price Chart for the Week of August 22 2021

Elliott Wave remains in an uptrend. If correct, the current i/ii wave looks really similar to the i/ii wave set-up in late May and early June (shape and duration).

SPX Price Chart for the Week of August 22 2021

COMMENTARY
After notching a new all time high last Monday, the S&P500 ($SPX) took a break.  Prices retreated from the channel’s upper trendline, falling towards the 50-day moving average.

The drop was pretty much over before it began, as the index rallied higher into the weekend.  It starts this week ~2% above the 50-day moving average and ~10% above the 200-day moving average.

The reason behind last week’s sell-off was the release of meeting minutes from the last Fed meeting. Or I should say the discussion of tapering bond purchases included in those minutes.

This week could prove just as eventful, as the Fed’s chairman is scheduled to speak at the central-bank symposium in Jackson Hole, Wyoming. You may remember that a similar speech, back in 2013, when comments were made about reducing QE. That speech triggered the so-called “taper tantrum” and the S&P500 sold-off about 6%.

While it definitely IS different this time, that doesn’t really mean much when it comes to the reaction you’ll see in various markets.  There are reasons for the market to continue higher, as well as reasons for it to sell off. Whether buying or selling, let the trades come to you.

Best to Your Week!

Stock Market Outlook entering the Week of August 15th = Uptrend

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

ANALYSIS
The stock market outlook uptrend remains in place this week, as the S&P500 grinds higher.

The S&P500 ($SPX) continues notching all time highs day after day, but on relatively small price movements. It’s hugging the upper bound of a channel; if that technical pattern continues to hold as it has over the past few months, the probability of a downward move (or at least limited upside) is high.

SPX Price Chart for the Week of August 15 2021

The index starts another week ~3% above the 50-day moving average and >10% above the 200-day moving average.

The ADX uptrend signal continues, with price action beginning to strengthen, similar to late June and early April. For price/volume, 2 days dropped off the count. With another 4 scheduled to drop out after this week, this signal likely returns to an uptrend in next week’s update. And the uptrend signal from Elliott Wave remains in place.

SPX Price Chart for the Week of August 15 2021

COMMENTARY
In the U.S., CPI and PPI numbers came out last week, with both measures showing an increase in prices. The consumer price index came in a bit below expectations, bolstering the narrative that inflation is transitory. The product price index came in a bit above expectations, bolstering the narrative that inflation isn’t transitory.

More than likely, we’ve got two types of inflation at play. The first is waning (i.e. consumer price increases), as reopening is well underway and product shortages from the first pandemic shutdowns have largely been addressed.  The second (producer price increases) is just getting started, reflecting the higher cost of doing business post-pandemic.

And lets not forget the U.S. Senate passed the trillion dollar infrastructure bill last week. It’s sorely needed, and shows that bipartisan support is possible, even if it’s not probable most of the time.

Best to Your Week!

Stock Market Outlook entering the Week of August 8th = Uptrend

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

ANALYSIS
The stock market outlook uptrend remains in place this week, with the index basically in the same position as last week.

Technically speaking, the S&P500 ($SPX) hasn’t advanced too much from July 26th or so; the index starts this week ~3% above the 50-day moving average, and >10% above the 200-day moving average.

SPX Price Chart for the Week of August 08 2021

The ADX remains bullish with weak overall price movement.  The S&P also picked up another distribution day. The count remains elevated (9), so the signal remains mixed.

One the plus side, the cluster of 6 from early July isn’t too concerning at this point, since recent selling has been sporadic. Another cluster now would be a bigger problem.

SPX Price Chart for the Week of August 08 2021

The uptrend signal from Elliott Wave remains in place.

COMMENTARY
Q2 earnings continue to come in on the strong side, but forward looking expectations (or lack thereof) seem to be scaring investors and causing sell-offs.  Partly to blame are improving economic conditions; U.S. unemployment fell in July, and in response treasury yields fell.

Expect a lot of hyperventilating about the Fed, interest rates, inflation, and employment in the coming weeks, leading up to the Fed meeting in Jackson Hole next month. None of it will be really useful for your decision making.  Instead, take a step back and see the forest for the trees, and watch GDP and consumer spending.

We’ve had good economic growth, relatively low inflation, and falling unemployment with more jobs than employees some areas.  The U.S. consumer continues to spend, thanks in part to government “funding”.

Those conditions won’t last forever.  Economic growth will slow down, as we normalize pandemic-related shocks and learn to live with COVID.  We know that prices are increasing due to supply chain issues, and regardless of whether it’s transitory, the Fed is going to allow inflation to increase.  Government stimulus will run out, and it’s not clear if the U.S. consumer will continue to spend at the same level…especially if interest rates rise.

Put those things together and you’ve set the stage for stagflation: slowing economic growth (GDP) with rising inflation and high unemployment.  We don’t have high unemployment, but employment is a proxy for the consumer demand (willingness to spend) and issues can occur even if it’s relatively low (e.g. 1973).

During periods of stagflation, picking the right asset class/sector is critical. In terms of asset classes, commodities tend to be the biggest winners, while debt/credit based instruments struggle.

Stock and bond investors can still profit from growth strategies, but the sector becomes very important (e.g. is it rate sensitive?).  For example, industrials, utilities, and big tech tend to outperform, while small caps and dividend plays tend to struggle.

For investors using an income investing strategy (specifically dividend investing), it’s even more important to invest in companies that have weathered these storms before. To that end, here are to data sets for you to use:

• Dividend Growth Investor reviewed a subset of the Dividend Champions
  • Companies that raised annual dividends each year for the past 25 years
  • https://www.dividendgrowthinvestor.com/2021/08/44-dividend-champions-for-further.html
• Sure Dividend updated the list of Dividend King’s last week
  • Companies that raised annual dividends each year for the past 50 years
  • https://www.suredividend.com/dividend-kings/

Best to Your Week!

Stock Market Outlook entering the Week of August 1st = Uptrend

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

ANALYSIS
The stock market outlook uptrend slide into August with sideways price action, which aligns with some of the weakness we discussed in last weeks post.

Fairly flat week for the S&P500 ($SPX) with the index hitting resistance at the upper channel line twice. It currently sits just off all time highs, ~3% above the 50-day moving average, and more than 10% above the 200-day moving average.

SPX Price Chart for the Week of August 01 2021

The ADX remains bullish, but the overall trend is weaken again.

The S&P also picked up 2 distribution days, coincidentally after testing the upper channel. At first glance, it appears to have added 3 distribution days, but 1 didn’t meet the price movement criteria. Wednesday’s close (vs. Tuesday’s close) dropped less than 0.2%. Either way, the count remains elevated, so the signal stays at “mixed” with price above the 50-day.

SPX Price Chart for the Week of August 01 2021

The uptrend signal from Elliott Wave rolls into another week…If wave i peaked on Thursday, wave ii could drop as low as 4225 before running back to all time highs. We haven’t checked the longer-term view in a while. The chart on the left aligns with the chart above, showing the 5th wave extension we’ve discussed a few times in the past. The chart on the right is an alternative view, proposed by a reader, asking what the count looks like if the Primary 1 wave ended with August’s sell-off. In both cases, it appears a correction is closer than it is farther away.

SPX Price Chart for the Week of August 01 2021

COMMENTARY
Earnings season started off pretty well, though some well known technology companies sold off surprisingly hard after reporting. But it’s next quarter’s earnings when we’ll begin to see post-COVID performance become the baseline for y-o-y comparisons.

A nothing-burger from the Fed last week; appears that they will continue to think about when to start thinking about telling us their thinking about normalizing financial policy.

Best to Your Week!

Stock Market Outlook entering the Week of July 25th = Uptrend

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

ANALYSIS
The stock market outlook uptrend remains in place to start the last week of July, but have we rebounded too quickly from last week’s weakness?

The S&P500 ($SPX) sold-off, then recovered last week, appearing to end the selling shortly after it began. In total, the “sell-off” dropped prices just a bit over 3.5% in 3 days.  I hesitate to call it a “correction”. It’s more like normal volatility creeping back into the market action, since we recovered all of the loss and then some over the following 4 days.

SPX Price Chart for the Week of July 25 2021

Technically, the long-term price channel ended thanks to Monday’s sell-off.  A new, short-term channel took its place.

The ADX made a quick, round-trip from bullish to bearish to bullish, highlighting the market volatility we just witnessed.  The SPX found support at the 50-day, but there’s a cluster of distribution days over the past few weeks (currently 6) which does indicate institutional selling at work and shifts the signal to mixed.

SPX Price Chart for the Week of July 25 2021

Based on last week’s price movement, Elliott Wave seems to be showing that the 5th wave is still alive…just not the way I thought. The S&P dropped below 4300 in dramatic fashion, and then rebounded just as quickly. Basically that means the count wasn’t correct, because wave 4 low points can’t overlap first wave high points. After relabeling the 5th minute wave, the current count still shows an “old” uptrend in progress.

COMMENTARY
Earnings season is upon us, but COVID’s Delta variant, inflation, and Fed support are driving the narrative.

Speaking of the Fed and their “support” of the economy, Natixis recently surveyed investors on a large number of topics. One interesting data point was their long-term expectations for returns. Globally, investors expect their returns to exceed inflation by 14.5%! U.S. investors expect to beat inflation by 17.5%!

I couldn’t find the definition of “long-term”, but that’s a pretty impressive average no matter what time frame you use.  You can dig into the report here (https://www.im.natixis.com/us/research/2021-natixis-global-survey-of-individual-investors).

And while it’s less of an immediate concern here in the U.S., China’s renewed focus on regulating publicly listed companies (e.g. BABA, DIDI, for-profit education firms) could eventually reach multi-national corporations. Something to watch.

Best to Your Week!