The Safe Investing Blog

Stock Market Outlook entering the Week of August 6th = Uptrend

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

ANALYSIS
The stock market outlook maintains an uptrend heading into August, but there are a few things to keep an eye on.

The S&P500 ($SPX) fell 2.3% last week.  As of Friday’s close, the index sat ~1.5% above the 50-day and 9% above the 200 day moving averages.

SPX Price & Volume Chart for the Week of Aug 06 2023

No change from the ADX last week, although the directional indicators did converge significantly during the sell-off.

Price/volume also remains in an uptrend, while picking up 3 distribution days in the past 7 sessions.  Friday’s intraday reversal added a distribution day to the count, even though volume wasn’t extended from Thursday’s session.

SPX Elliott Wave Analysis for the Week of Aug 06 2023

Elliott Wave remains mixed; both counts are working on their first wave down, after showing a completed rally on August 27 at 4607.  Key support and resistance levels remain unchanged at 4169 and 4632.

SPX Elliott Wave Analysis for the Week of Aug 06 2023 – Bullish Count

Zooming out to the long-term view shows the rally extended for 5 weeks versus the last chart update in July.

SPX Elliott Wave Analysis for the Week of Aug 06 2023 – Bullish Count

If the market truly started a new bull market last October, Elliott Wave puts the next in the S&P500 somewhere between 4200 and 3800; roughly a ~7% to 18% drop from Friday’s close.

If the S&P500 just experienced a long, bear-market rally from October 2022, then the next wave completes somewhere below the March 2023 low of ~3800.

SPX Elliott Wave Analysis for the Week of Aug 06 2023 – Bearish Count

So for the next couple of months, Elliott Wave may not be much help in determining the longer-term trend.

COMMENTARY
On Tuesday, Fitch Ratings downgraded the Long-Term Foreign Currency IDR fpr the U.S. from AAA to AA+ (Fitch Downgrades the United States’ Long-Term Ratings to ‘AA+’ from ‘AAA’; Outlook Stable). IDR the abbreviation for Issuer Debt Rating. Per Fitch:

The rating downgrade of the United States reflects the expected fiscal deterioration over the next three years, a high and growing general government debt burden, and the erosion of governance…has manifested in repeated debt limit standoffs and last-minute resolutions.

Based on that rationale, I’m surprised anyone was surprised! In the end, the rating change means that this risk of owning U.S. debt is slightly higher now, so interest rates will rise to compensate.

The Non-Farm Payrolls report for June was a mixed bag. Payrolls were up 187K, missing the consensus estimate for 200K. Unemployment dropped 10 basis points (3.6% to 3.5%), and average hourly earnings increased more than expected (+4.4% Y/Y).  These data points, combined with last week’s advanced GDP and PCE figures, are unlikely to dissuade the FOMC from raising rates again.

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, T1 Alpha, 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 July 30th = Uptrend

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

ANALYSIS
The stock market outlook remains in an uptrend as we close out the month of July.

The S&P500 ($SPX) rose 1% last week.  No change versus key support levels; the index still sits ~5% and ~12% above the 50 and 200-day moving averages, respectively.

SPX Price & Volume Chart for the Week of July 30 2023

No change in signal for the ADX; a strong uptrend continues to unfold.  Price/volume also remains in an uptrend, with almost no distribution taking place over the past 5 weeks.

SPX Elliott Wave Analysis for the Week of July 30 2023

Both Elliott Wave counts show the market in the final stage of the recent rally.  A negative divergence in both the RSI(5) and the MACD are bearish near-term, though key support and resistance levels remain unchanged (4169 and 4632).

COMMENTARY
The NASDAQ 100 rebalance was a non-event, and doesn’t appear to have significantly impacted the overconentration problem.  Per IBD:

Source: https://www.investors.com/etfs-and-funds/sectors/nasdaq-100-big-changes-hit-the-including-these-surprises/

Recapping last week’s economic data releases, manufacturing PMI surprised to the upside (vs. estimates) but remains in a contraction with a reading of 49.  Services PMI fell to 52.4, which is the lowest reading in 5 months.

The U.S. FOMC raised rates 0.25%, and will evaluate further hikes at the next meeting.

The “advanced” GDP estimate for Q2 came in much higher than expected, particularly versus the y/y comparison, which was interpreted as a sign of economic strength.

And finally, PCE came in at +3% y/y, while core PCE was +4.1%.  Both figures confirm the trends shown in CPI data; inflation continue to decline, but remains higher than the Fed target.

Another big week of earnings coming up, along with the latest jobs data:

I received a question or two on the US Treasuries General Account.  Back in June, we discussed the unwind of “extraordinary measures” taken by the U.S. Treasury after we reached the debt ceiling.

U.S. Treasury Account – Weekly Average – 2023-07-30
https://fred.stlouisfed.org/series/WTREGEN

As of July 26, the account average was ~$543.6 billion.  for reference, the balance on June 7 was $44.8 billion.   So the account was refilled quickly.  As suspected, the source of the funds was the critical variable. From an S&P500 perspective, price and volume trends remains positive over the same period of time, indicating that funds weren’t coming from U.S. equity holdings.  

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, T1 Alpha, 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 July 23rd = Uptrend

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

ANALYSIS
The stock market outlook maintains an uptrend for the S&P500.

The S&P500 ($SPX) rose 0.7% last week.  No change versus key support levels; the index still sits ~5% and ~12% above the 50 and 200-day moving averages, respectively.

SPX Price & Volume Chart for the Week of July 23 2023

No change in signal for the ADX; a strong uptrend continues to unfold.  Price/volume also remains in an uptrend, with almost no distribution taking place over the past 5 weeks.

SPX Elliott Wave Analysis for the Week of July 23 2023 – Bullish

Elliott Wave counts received a small update to the Minute wave structure, but stays mixed while we wait for the next pullback.  Key support and resistance levels are 4169 and 4632.  Short-term view remains bullish based on wave structure (3 of 5), while the negative divergence in the MACD histogram is bearish longer-term.

SPX Elliott Wave Analysis for the Week of July 23 2023 – Bearish

COMMENTARY
Quite a bit of option-related trading last week; largest July expiration on record.  We seem to be getting a lot of those (op-ex records) over the past year.

On the economic front, housing starts and permits for June were down slightly M/M, which isn’t surprising given May’s outperformance.  U.S. Retail Sales June were also lower than expected, coming in at +0.2% M/M; not the best signal for upcoming earnings from retail names.

Big week of earnings coming up:

In addition to earnings, there’s a lot of economic data set for release this week.  Manufacturing and Services PMI from S&P Global kick things off on Monday, while Tuesday brings more housing data to the table.  The FOMC releases another interest rate decision on Wednesday, followed by the “Advanced” Q2 GDP estimate on Thursday and June PCE on Friday.

First things first:  before trading begins on Monday, Nasdaq Inc. will before a “Special Rebalance” Nasdaq 100 index to address the benchmark’s “overconcentration” in the largest companies by market capitalization.

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, T1 Alpha, 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 July 16th = Uptrend

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

ANALYSIS
The stock market outlook maintains an uptrend for the S&P500.

The S&P500 ($SPX) rose 2.4% last week.  The index sits approximately 5% and 12% above the 50 and 200-day moving averages, respectively.  Having eclipsed the August high point, the next level of resistance dates back to the high on March 29, 2022 at 4637.

SPX Price & Volume Chart for the Week of July 16 2023

No change in signal for the ADX.  Price/volume also remains in an uptrend.  No distribution days last week; Friday’s volume was above average, but the price movement didn’t qualify.

Elliott Wave is back under construction (i.e. mixed), with the SPX making reaching a “higher” high last week, and the MACD crossing over for the 4th time in the past 4 weeks.

SPX Elliott Wave Analysis for the Week of July 16 2023 – Bullish

The bullish view required a rethinking of the Minor wave counts in order to accommodate the rally since mid-May.  The next major resistance level is the 1.618 Fibonacci extension for Minor 3 (4632), with support near the Minor 1 high at 4169.

SPX Elliott Wave Analysis for the Week of July 16 2023 – Bearish

Meanwhile, incorporating the major inflection points from the bullish view allows the current bearish count to accommodate the latest move higher.

COMMENTARY
Government data continues to show inflation on the decline.  Wednesday’s headline CPI figure came in at 3% year over year, which was lower than expected and a far cry from last June’s 9.1% reading.  Core CPI remained elevated at 4.8%.  The headline Producer price index showed a 0.1% gain verses last June, while core PPI rose 2.4% year over year.

Q2 earnings kicked off the same way that Q1 ended; headlines stating that earnings aren’t as bad as feared, as companies continue to beat analyst estimates. At the same time, earnings growth continues to decline.

You might be wondering how can earning growth can be negative if companies are “beating” estimates. There are 2 reasons:

1. Analysts revise their estimates/targets lower making them “easier” to beat
2. Companies and analysts use “adjusted earnings”, which remove certain expenses from GAAP figures.

Lowered expectations are easier to beat, especially after “adjustments” to expenses.  These adjustments also make historical comparisons more difficult, since you have work with the companies financial statements to get an apples to apples comparison.  Neither of those things makes for good headlines and/or 30 second soundbites.

According to Factset, earnings growth has been negative since mid-October of last year…the same time S&P500 bottomed.  So the S&P500’s gains during the past 9 months weren’t driven by higher profits.

In terms of “valuation”or  P/E ratio, the October reading for the S&P500 was 19-20 (Price to Equity using Trailing 12 months calculation).  Last week, the reading was over 25.   We know that earnings growth declined over the same period of time, so the “E” got smaller.  So even if price or “P” didn’t change, the P/E ratio increases.

The above is a math-based way of that stocks are less valuable than they were in October, because stocks have increased in price per share AND are earning less per share.  This is one of the very few instances when “inflation” isn’t considered a problem, because “stocks go up” is seen as a good thing.

This week, retail sales for June, as well as updated housing market data, are on the way.  Monthly options expiration occurs 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, T1 Alpha, 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 July 9th = Uptrend

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

ANALYSIS
The stock market outlook shows an uptrend for the S&P500.

The S&P500 ($SPX) fell 1.2% last week, but still provided investors an opportunity to lock in gains from the June rally.  The index sits approximately 3% and 9% above the 50 and 200-day moving averages, respectively.

SPX Price & Volume Chart for the Week of July 09 2023

No change in signal for the ADX or price/volume technical indicators; an uptrend remains in place.

Elliott Wave maintains a downtrend, thanks to the completed wave structures.  Now we wait for the next wave pattern to emerge.  As mentioned last week, any sustained move higher at this point in time is unexpected and would require new counts.

COMMENTARY
According to the figures released last week, employment remains strong and job growth continues.  Payroll data from ADP was higher than expected, but appears to include regional and seasonal adjustments that skewed the data. Job openings (JOLTS data) showed a small decrease, dropping from 10.3 million April to 9.8 million May.  The non-farm payroll (NFP) report from the Bureau of Labor Statistics (BLS) puts June unemployment at 3.6%, little changed from last month.

This week marks the “official” start of Q2 earnings season, with major banks set to report on Friday, including JPMorgan ($JPM), Wells Fargo ($WFC), and Citi ($C).  We also get the latest CPI data on Wednesday and PPI on Thursday.

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, T1 Alpha, 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 July 2nd = Uptrend

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

ANALYSIS
The stock market outlook shows an uptrend in place as enter July.

The S&P500 ($SPX) rose 2.3% last week; rallying into month and quarter end.  The index currently sits 5% and 10% above the 50 and 200-day moving averages, respectively.

SPX Price & Volume Chart for the Week of June 25 2023

No change in signal for the ADX or price/volume.  Market leadership, as represented in the IBD Top 50 Innovators ETF ($FFTY), showed signs of accumulation last week.

SPX Elliott Wave Analysis for the Week of June 25 2023 – Bearish Count

Elliott Wave remains in a downtrend, even with last week’s rally.  Last weekend’s signal shift appears to be early at first glance, but the bounce wasn’t a surprise considering the prior rallies in late November 2022 and mid-February 2023, which also occurred after a MACD crossover.  That said, further upside would be surprising based on the wave counts and likely shifts the signal.

SPX Elliott Wave Analysis for the Week of June 25 2023

COMMENTARY
Last weekend’s Russian drama fizzled out as quickly as it started, with minimal impact on financial markets.  Unfortunately, civil unrest in France this weekend renews the potential for volatility heading into a typically underwhelming week of trading activity.

As for last week’s economic data, durable goods orders rose slightly and housing data was mixed.  U.S. consumer confidence was better than expected, hitting the highest headline number since January 2022.

As expected, Personal Consumption Expenditure (PCE) for May showed inflation remaining high, but not as high as last month or last year’s reading.  The headline number came in at +3.8% y/y (vs. 3.8% estimate), while Core PCE was +4.6% y/y (vs. estimate of 4.7%).

The answer last week’s closing question was A) Month & Quarter end mark-up.  Based on the chart, profits were taken the prior week, with traders content to run things up before heading out of town for the long weekend.

U.S. markets have a shortened trading session on Monday and no trading session Tuesday, in observance of Independence Day on July 4th.

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, T1 Alpha, 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 June 25th = Uptrend

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

ANALYSIS
The stock market outlook maintains an uptrend to start the final trading week of June.

The S&P500 ($SPX) fell 1.4% last week, but remains elevated from the 50 and 200 day moving averages (~3.5% and ~8%, respectively).

SPX Price & Volume Chart for the Week of June 25 2023

No change in signal for the ADX or price/volume. Rebalancing of the Russell 2000 skewed trading volumes to the upside on Friday, although price was almost unchanged.

Elliott Wave moves from mixed to downtrend. The MACD cross-over marks the end of the current wave structure for both bullish and bearish counts.

SPX Elliott Wave Analysis for the Week of June 25 2023 – Bearish Count

This signal does NOT mean the market won’t rally from here. It’s entirely possible the SPX bounces back towards the June 16 high this week, much like the late November 2022 and mid-February 2023 rallies after the MACD began a bearish cross-over.

SPX Elliott Wave Analysis for the Week of June 25 2023 – Bullish Count

COMMENTARY
A rate hike from the UK central bank surprised most market participants, during an otherwise light week of economic data releases.

The S&P500 completed earnings season: Revenue grew 4.2%, profits fell 3.6%.  Those figures don’t sound too bad, until you look at the sector break-down and see the relatively large range of performance.

Source: Hedgeye Risk Management via Bloomberg

Regardless of how many times company executives mention “AI” and/or artificial intelligence, underlying economic data doesn’t support a widespread earnings turnaround next quarter; reporting begins in 3 weeks.

Monday’s opening price action will be influenced by Russia’s internal conflict, which took center-stage during the weekend. We get durable goods/orders, consumer confidence, and home sales on Tuesday morning.

Source: TD Ameritrade via Briefing.com

The Fed’s preferred inflation gauge, Core Personal Consumption Expenditure (PCE), drops on Friday. The data probably shows inflation remaining high, but not as high as last month or last year, which still supports the U.S. Fed’s “higher for longer” stance on interest rates.

The coming week not only marks the end of June, but also the end of the second quarter. Will equities get a month-end mark up as investors fear missing out on the June rally? Or will market participants unload their winners ahead of the summer trading lull? Maybe a bit of both…why don’t consider the same for yourself?

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, T1 Alpha, 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.