The Safe Investing Blog

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.

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.