The Safe Investing Blog

Stock Market Outlook entering the Week of November 27th = Uptrend

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

ANALYSIS
The stock market outlook stays in an uptrend, with 2 of 3 indicators signaling bullish trends. However, all 3 indicators show signs of weakness. Trade carefully and protect your capital!

The S&P500 ($SPX) rose 1.5% last week. The index is ~6% above the 50-day and ~1% below the 200 day moving average, and is closing on the long-term trendline dating back to mid-January.

SPX Price & Volume Chart for the Week of November 27 2022

The ADX and price & volume remain bullish. The ADX is below 25, indicating a weak trend in place. Even though the August rally ultimately failed at the 200-day moving average, at least it had a strong bullish trend as measured by the ADX. The November rally is much weaker from that perspective.

SPX Price & Volume Chart for the Week of November 27 2022

And speaking of volume, not sure what’s going on during the past two weeks. Trading volume ran well below average and looks like a typical Christmas holiday.  It definitely doesn’t look like last Thanksgiving, even accounting for the fact that the market was in the final stages of a bull market at that time.  Low trading volume is not a good sign for a market trying to rally and/or break through technical resistance levels.

SPX Elliott Wave Analysis for the Week of November 27 2022

Elliott Wave analysis has the SPX in the final stage of the Intermediate (X), counter-trend rally: 5th wave (Minutte) of the 5th wave (Minute) of the C wave (Minor).  The next wave down (Intermediate (Y) ) should be the last leg (Primary [Y] wave) of the “Double 3” pattern we’ve been tracking most of this year.  And that would complete the Cycle II bear market.

SPX Elliott Wave Analysis for the Week of November 27 2022

COMMENTARY
A lot of data hits the wires this week, so another round of volatile trading sessions is likely. We get retails sales released tomorrow, which also happens to be Cyber Monday. Retailers started circulating big discounts and “Black Friday” deals a few weeks early this year, as they attempted to clear pre-holiday inventory. So Monday’s online sales may not move the needle.

Labor data starts flowing on Wednesday, with Job Openings and Labor Turnover Survey (JOLTS) coming out pre-market.  Thursday brings Personal Consumption Expenditures (PCE) for October, which is the Fed’s preferred measure of inflation. And on Friday, the November nonfarm payrolls report is released.

Perhaps most importantly, Fed Chair Powell will speak at the Brookings Institute on Wednesday at 1:30 EST, delivering remarks on the economic outlook, inflation, and the labor market.

Eagle-eyed readers looking at the second chart probably spotted a big spike in trading volume near the end of November 2021.  Can you guess what happened?  Powell gave a speech to the U.S. Senate on November 30th, and said that inflation was no longer transitory.  He also stated that the Fed would consider speeding up its withdrawal of bond purchases as inflation risks increase (i.e. the end of QE).

Earnings season may be winding down, but don’t forget there are a few big names reporting this week. Watch your holdings accordingly.

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, U.S. Bureau of Economic Analysis, U.S. Bureau of Economic Analysis

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 November 20th = Uptrend

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

ANALYSIS
The stock market outlook stays in an uptrend, with the SPX consolidating CPI-related gains.

The S&P500 ($SPX) fell 0.7% for the week, with trading volume well below average.  The index currently sits ~4.5% above the 50-day and ~2.5% below the 200 day moving average.

Technical analysis of daily SPX prices

The ADX signal stayed in bullish territory all week, as did price & volume.  Elliott Wave analysis shows the SPX bouncing between the 50% and 61.8% Fibonacci levels of the Intermediate ( W ) wave, as the index enters the final stage of the counter-trend Minor C wave.

SPX Price & Volume Chart for the Week of November 20 2022

Looking at the longer-term, weekly view,  shows the SPX just below the 34-week moving average, which has been a reliable place to capture profits since the downtrend began in January.

SPX Elliott Wave Analysis for the Week of November 20 2022

COMMENTARY
Q3 earnings season is winding down, with 476 companies in the S&P500 reporting as of Friday morning.

On average, revenue (sales) grew ~12% year over year, slightly lower than last quarter (14%).  The minor decrease shows that higher prices haven’t completely crushed demand just yet.  But consumer credit data shows that we’re using more debt to sustain those purchases.

Average earnings only grew ~3% year over year, falling from ~8% last quarter, and shows the impact of inflation on the cost of doing business (i.e. increases in salaries, raw material, etc.).

In both quarters, the energy sector skewed average performance significantly.  Sales were up 77% and 50%, while earnings increased 305% and 150% (Q2 & Q3 respectively).

The overall narrative is that earnings weren’t as bad as feared.  I’m not sure that tech stock investors would agree, but in general it’s true.  Unfortunately, a good deal of the recent market rally is likely the result of US dollar weakness.

In fact, the negative correlation of the SPX to USD has been more -90% over the past 30 days! That’s A LOT.

Looking forward doesn’t improve the picture, because the U.S. yield curve is inverted and continues to signal “recession is coming”.  Here are the rates across the curve as of Friday:

• 3 Month = 4.34
• 2 Year = 4.51
• 5 Year = 3.99
• 10 Year = 3.82
• 30 Year = 3.92

Those rates put the inversion of the 10-year treasuries and 2-year treasuries (10s & 2s) at -0.69.  That’s the biggest inversion since 1981; bigger than 1989, 2000, 2007, and 2019.

https://fred.stlouisfed.org/series/T10Y2Y

The 10/2 spread from Dec 1976 to Dec 1978 looks very similar to our current run from the March 2021 peak.  It’s an important callout, because we know that the current Federal Reserve thinks the 1980s Fed stopped raising rates “too soon” because of recession fears.  So this time around, we may see a recession before we get interest rate relief.

A light week coming up, with U.S. markets closed on Thursday and closing early on Friday for the Thanksgiving holiday.

Best To Your Week and Have a Happy Thanksgiving!

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, U.S. Bureau of Economic Analysis, U.S. Bureau of Economic Analysis

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 November 13th = Uptrend

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

ANALYSIS
The stock market outlook flipped back to an uptrend, with 2 of the 3 signals back to a bullish trend.  You’re not surprised if you read last week’s outlook:

Given the current level of the VIX (below 30, above 20), don’t be surprised if the signals whipsaw back and forth.

The S&P500 ($SPX) rose almost 6% for the week, but technology stocks were the real winners with the NASDAQ ($COMP) jumping 8.1%!

SPX Price & Volume Chart for the Week of November 13 2022

The ADX started last week in bearish territory, flipped to bullish on Tuesday, back to bearish on Wednesday, then back to bullish on Thursday.

Price and volume also starts the week in uptrend territory, after a strong move past the 50-day moving average on higher trading volume.

SPX Elliott Wave Analysis for the Week of November 13 2022

Elliott Wave analysis shows the SPX just below the the 62% retracement target mentioned last week, suggesting the counter-trend rally is nearly complete.

COMMENTARY
Last week was certainly a long year!  U.S. mid-term elections, CPI data for October, and the blowup of another cryptocurrency exchange were just a few of the highlights.

Despite all the warnings, no “red wave” materialized in the U.S. elections. Impact to markets?  Minimal.

CPI data showed October inflation rose 7.7% year over year, which was lower than expected. Core inflation rose 6.3%, which was also lower than expected.  To say that the market impact was positive is an understatement.

Then there’s crypto; specifically the implosion of FTX.  FTX is an exchange used to trade various cryptocurrencies, and it filed for bankruptcy protection after experiencing the equivalent of a bank run. Since it’s not a bank, that’s a problem.

Many assume, incorrectly, that FTX (and other exchanges) provide some level of protection like brokerages and banks (read more about FDIC and SIPC protections here).  They don’t.

Retail investors using the platform do so at their own risk; no guarantees, no deposit insurance, nothing.  Instead, traders essentially loaned their money to FTX, in return for the opportunity to trade crypto.  And FTX did as they pleased with those “loans”: salaries, investments, expenses, loans, whatever.

Last week, too many people decided to take back those loans at the same time.  FTX couldn’t meet those requests, making them insolvent.  At the same time, the value of their assets (mainly cryptocurrencies) plummeted, forcing the company to file for bankruptcy protection.

We saw similar movies earlier in the year, when other crypto exchanges blew up (e.g. Celsius, Voyager).  The “losers” are a relatively small number of retail investors like you and me.  Usually, there’s a few articles, the call for regulation, and then we collectively move on.  Outside of the cryptocurrency markets, the direct impact is negligible.

But this time might actually be different!  Various officials, “experts”, and celebrities were involved, whether they bought equity, received funding, and/or marketed the FTX trading platform…names you’ll recognize from the news, social media, CNBC, even the government.  And they’ll all be looking to point fingers!

Using celebrity is a form of “classical conditioning”.  You attribute the qualities of celebrity to the brand; in this case FTX and or it’s founder Sam Bankman-Fried.  That type of marketing leads to a false sense of security and leads to poor decision making.  We don’t know (yet) is how many institutions, non-retail investors, and creditors were caught up in the marketing and will need to take a loss?

I’ve seen one so far:  the Ontario Teacher’s Pension Fund.  Pension funds shouldn’t have been invested in as asset class as volatile as cryptocurrencies, let alone shares of an unregulated exchange in the Bahamas. In all likelihood, the decision to do business with FTX will result in losses in the millions of dollars.

That loss, and others like it, will be harder to move on from, let alone ignore.  How much more spillover will there be?  We don’t know yet…and that is the scary part.

It’s easy to experience the fear of missing out when stocks rocket higher.  And that’s especially true during a bear market.  This is your reminder to pause, recenter, and execute your process (e.g. your own OODA loop – H/T Hedgeye).  History tells us to proceed with caution and tight stop losses, as last week’s moves aren’t typical of bull markets.

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, U.S. Bureau of Economic Analysis, U.S. Bureau of Economic Analysis

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 November 6th = Downtrend

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

ANALYSIS
The stock market outlook flipped back to a downtrend on Wednesday, with 2 of the 3 signals back to bearish trends. Given the current level of the VIX (below 30, above 20), don’t be surprised if the signals whipsaw back and forth.

The S&P500 ($SPX) fell 3.3% last week, cutting through a trendline connecting higher lows in mid-October. The index closed Friday’s session just below the 50-day and 8.6% below the 200-day moving average.

SPX Price & Volume Chart for the Week of November 06 2022

The ADX signal flipped to bearish on Wednesday, and price/volume shifted to mixed, as the market sliced through the 50-day moving average on higher trading volume.

SPX Elliott Wave Analysis for the Week of November 06 2022

Elliott Wave analysis shows the ongoing, counter-trend rally.  Given the RSI/MACD set-up, another wave higher (5th wave or a C-wave) is still possible, with the 62% retracement near 4000 an appropriate target.

SPX Elliott Wave Analysis for the Week of November 06 2022

It’s possible, although less likely, that the counter-trend rally completed at 3900 as an Intermediate (4), and the SPX drops to a new low to complete Primary [3], similar to mid-June price action.

SPX Elliott Wave Analysis for the Week of November 06 2022

COMMENTARY
In response to the Fed meetings last week, we got both of the outcomes mentioned last week, within the span of an hour! See the daily chart from Axios (H/T Steve Blumenthal & On My Radar):

As soon as the hike was released, the markets surged higher on a dovish interpretation of the statement; the Fed was going to hike by smaller amounts going forward, which meant that the hiking was almost done, which meant that a rate cut (pivot) was “closer”.

Then the press conference started. Powell said the Fed may not raise as much the next meeting, but that they may have to raise more than expected; i.e. the overall interest rate level when they’re done hiking will be higher.  That means no pivot.

Powell repeated his view that he’d like to hike too much, rather than hike too little. He went a step farther and said that IF rates get too high (i.e. over tighten), the Fed has the tools to fix any problems that arise. To me, that says we’ll have to see something seize up in the credit market for the Fed to lower interest rates (rather than falling stock prices).

The next Fed meeting is December 13 & 14, when it’s likely we WILL see a lower increase in rates. By then, the issue for stock prices will be lower earnings, not interest rates.

This week’s volatility will be brought to you by the latest CPI report and consumer credit data.

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, U.S. Bureau of Economic Analysis, U.S. Bureau of Economic Analysis

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 October 29th = Uptrend

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

ANALYSIS
The stock market outlook flipped to an uptrend early last week.  Will response to U.S. Fed minutes throw cold water on the rally?

The S&P500 ($SPX) rose 4% last week.  Friday was year-end jockeying for a lot of mutual funds, when they attempt to meet targets, secure performance bonuses, etc.  Those flows helped move the index past the 50-day on above-average trading volume. Friday trading is harder to read, with short-date index options trading more than monthly these days.

SPX Price & Volume Chart for the Week of October 30 2022

The ADX signal flipped on Tuesday, joining price and volume on the bullish side and shifting the overall outlook to an uptrend. With 2 of 3 signals showing bullish price action, the market outlook shifts to an uptrend. The fledgling rally already has 3 distribution days though, so keep a close eye on your individual holdings and cut losses quickly. 

SPX Elliott Wave Analysis for the Week of October 30 2022

Elliott Wave analysis shows the counter-trend rally hitting 3900, which was the 50% retracement target.  There’s a small negative divergence in the RSI, so the wave count shown has the SPX completing an extended 3rd wave (vs. completing 5th).

COMMENTARY
The market absorbed some gut punches this week, with disappointing earnings reports sending stock prices down sharply for Amazon, Google, Meta and Microsoft.  Apple’s report was less bad, so the stock rallied. If earnings reports are on deck for your holdings, hedging your positions with short-dated options is a good strategy to mitigate risk.

Over the past two weeks, pundits and contrarian investors are citing historically high levels of bearish sentiment as a reason for stocks to rally.  Many recall Warren Buffett’s famous saying to be “fearful when others are greedy, and greedy when others are fearful”.

The problem right now is that sentiment (feelings) doesn’t reflect positioning (actions).  I mentioned the high level of bullish bets placed via call options, but it’s not just derivative bets; US Equity funds saw their biggest inflows in 18 weeks according to Lipper. To me, that seems like a lot of people being greedy because they think everyone “should” be fearful.

Given the sour mood and slowing economic data, U.S. senators tried to pressure the Fed into pausing interest rate hikes.  Ironically, those same senators were worried about maintaining Fed “independence” from interference from legislative and executive branches of government a few years ago.  Go figure.

Q3 GDP and PCE figures were released. Regardless of the narratives, neither dataset slowed enough for the Fed to change course on rate hikes this year.  They’re both backward looking and may not reflect current conditions, but that’s what a “data dependent” Fed uses right now.

Big event risk this week heading into the Fed meetings on November 1st and 2nd. I expect a binary outcome: a hawkish interpretation sends stocks down and a dovish interpretation sends stocks up.

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, U.S. Bureau of Economic Analysis, U.S. Bureau of Economic Analysis, WorldGovernmentBonds.com

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 October 23rd = Downtrend

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

ANALYSIS
The stock market outlook remains in a downtrend, though the SPX showed signs of life.

The S&P500 ($SPX) rose 4.7% last week, busting through a resistance trendline. The index sits 3.5% below the 50-day moving average and 9.3% below the 200-day moving average.

SPX Price & Volume Chart for the Week of October 23 2022

The ADX signal continues in a downtrend, but price/volume flipped on Friday. The new uptrend signal comes from the follow-through day on Friday (>1.5% increase on higher than average trading volume).

That said, it’s not an all clear, risk-on signal. The index still trades below the 50 day, and the higher volume follow-through was largely due to monthly option expiration. And the Friday session had A LOT of option volume, particularly in index options such as the SPX, meaning the session was more about trading options hedging activity, rather than strength from something like corporate earnings. Not to mention the fact that the VIX remains near 30.

SPX Elliott Wave Analysis for the Week of October 23 2022

Elliott Wave analysis still puts the SPX in the first wave of a 3-wave countertrend rally.  For now, 3900 is still a plausible target, but the SPX has to make it past 3800 first.  It’s still possible that the prior downtrend isn’t over and the SPX is working through a complex Minor 4 which would mean another wave down to complete Minor 5 (not pictured).

COMMENTARY
Rather than monthly option expiration, there was a lot of commentary on another cause for last week’s rally. It’s a bird, it’s a plane…no, it’s another Fed Pivot!

Okay, it’s not a “pivot” this time; that would mean the Fed would cut rates. And it’s not a “pause”, or a stoppage in rate hikes, like the narrative that fueled the summer rally. This time, it’s the hope that the target rate for ALL of the rate hikes (i.e. the “terminal” rate) will be lower than the market currently expects, so the December rate hike will only be 0.5%.

A few weeks ago, I mentioned that the Fed doesn’t meet until November 1-2, so it was anyone’s guess until that point in time.  This “guess” came courtesy of Nick Timiraos of the Wall Street Journal, the Fed’s “unofficial” source when they want to send a signal to the markets. What did they want to communicate? A cut? A pause? A lower terminal rate?

No. Apparently the Fed wanted everyone to know that they’ll discuss reducing the pace of rate hikes after raising rates 75 basis points in November.  If that’s the only good news for investors, that’s not good.  Believe it when you see it in the yield curve my friends.

Earnings season continues this week. So far, reports are not as bad as feared, but executives are expressing more concern about their outlooks for Q4 and 2023.

Investor sentiment is really bearish, and many stocks are oversold based on technical indicators. Those conditions set the stage for a tradable rally, but not a “buy and hold” type of bottom. Bear markets end when investors throw in the towel and stop trading all together. Judging from the trading volume on Friday, we’re not there yet.

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, U.S. Bureau of Economic Analysis, U.S. Bureau of Economic Analysis, WorldGovernmentBonds.com

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 October 16th = Downtrend

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

ANALYSIS
The stock market outlook remains in a downtrend after another volatile week of trading.

The S&P500 ($SPX) fell 1.6% last week, closing ~9% below the 50 day and ~14% below the 200 day moving averages…not much different than last week.  The good news?  Historically speaking, the index doesn’t spend much time that far below the 200-day.

SPX Price & Volume Chart for the Week of October 16 2022

The ADX? Still bearish.  Price/volume remains in a downtrend for now.  Thursday’s reversal counts as “Day 1” of a potential rally. The most robust rally confirmations (>1.5% increase on higher than average trading volume) typically occur between Day 4 and Day 10, so be on the lookout next week.

SPX Elliott Wave Analysis for the Week of October 16 2022

After diving below the September low, Elliott Wave appears to show a completed 5-waves pattern.  That view is supported by positive divergences in both the RSI and MACD technical indicators.  The 5th wave looks compressed, time-wise, but that’s to be expected during highly volatility trading periods (VIX > 30).

If the count holds, a 3-wave, counter-trend rally is in play.  It’s possible to have a full retracement, back to 4325, but that seems unlikely given current economic conditions.  3900 is a 50% retracement of the August high and represents a ~9% rally from Friday’s close.  It’s also back in that middle of the May-June, July resistance “band”.  That’s just enough of a countertrend rally get bullish investors back into stocks before the next rug pull.

COMMENTARY
Another U.S. CPI report, another higher than expected reading.

• CPI
  • +0.4% MoM; +0.2% expected
  • +8.2% YoY; +8.1% expected
• Core CPI
  • +0.6% MoM; +0.4% expected
  • +6.6% YoY; +6.5% expected

Even though the Fed really cares about PCE, elevated CPI readings provide more cover for interest rate hikes at the next Federal Reserve meeting.  It also destroys the “peak inflation” rationale for any market bounces.

Peak inflation or not, the debt market is signaling more pain ahead for the economy and investors.  The yield curve inverted even further to -52 basis points or -0.52% (2 year vs. 10 year treasuries).  That’s the biggest inversion since the early 80’s!  How many of today’s advisors were managing money back then?  How many were even born back then?

It’s not just a U.S. phenomenon either; per the World Government Bonds website, 18 countries have an inverted yield curve, including:

• Chile
• Canada
• Czech Republic
• Hong Kong
• United States
• Poland
• Iceland
• Sweden
• South Korea
• Hungary
• Turkey
• Pakistan
• Kazakhstan
• Brazil
• Mexico
• Nigeria
• Ukraine
• Russia

Global recession risk indeed!  And that doesn’t count several countries with partially inverted yield curves.

Personally, I think the U.S. market is due for a tradable rally.  It won’t be the time to go all-in from an investing standpoint.  And before you regurgitate those stats about missing the 10 best days in the market, I have two things for you to consider:

1. The biggest one-day gains in stock market history have come in bear markets, not bull markets
2. Being OUT of the market for the 10 worst days has a bigger impact on your portfolio than being IN the market for the 10 best days (chart is old, but supports the point)

Source: LPL Research

Earnings season began last week with big banks reporting Q3 results; looks like they’re beating estimates, but down versus last year.  Pay attention to the rate of change in earnings; it will tell you much more about the company’s future prospects than whether or not they beat soft estimates.

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, U.S. Bureau of Economic Analysis, U.S. Bureau of Economic Analysis, WorldGovernmentBonds.com

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.