The Safe Investing Blog

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.

Stock Market Outlook entering the Week of June 18th = Uptrend

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

ANALYSIS
The stock market outlook starts the week in an uptrend, on the back of lower than expected inflation, no Fed rate hike, and the largest option expiration on record.

The S&P500 ($SPX) rallied 2.6% last week.  The index is up ~15% since the start of the year, up ~26% from the bear market low (Oct 2022), and down ~9% from the high of the last bull market (Feb 2022).

SPX Price & Volume Chart for the Week of June 18 2023

No change in signal from the ADX, but both directional indicators (DI+/ DI-) sit at extreme levels. The last time the ADX set-up like this was at end of August, 2020. A 10% correction occurred during the next month.

Price/volume also shows an uptrend in place.  Even the Innovator IBD 50 ETF ($FFTY) fund joined the action, rising past prior resistance levels.

SPX Elliott Wave Analysis for the Week of June 18 2023 – Bullish Count

Believe it or not, there’s no change in Elliott Wave counts.  Both the bullish and bearish views allowed for last week’s move within their respective 5th waves.  As mentioned last week, watch for a bearish MACD cross-over in the daily charts to confirm the end of the rally.

COMMENTARY
An impressive rally in U.S. stocks last week, with economic data showing the effect of higher interest rates.

The headline number for May consumer inflation data (CPI) came in at +4.0% Y/Y, which is down 0.9%. Core CPI also declined +5.3% Y/Y, which is a deceleration of 0.2%. The Producer Price Index (PPI) declined 0.3 percent in May, showing +1.1% Y/Y.

In response to slowing inflation, the U.S. FOMC announced a pause or “skip” in interest rate increases.

Retail sales were slightly better than expected, rising 1.6% Y/Y, showing that the consumer is still willing to spend.  However, initial jobless claims appear to be bottoming, highlighting that producers remain cautious when it comes to labor costs.

And after a week of “dovish” data, market participants used Friday’s quadruple witching day to book some gains.

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 11th = Uptrend

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

ANALYSIS
The stock market outlook maintained an uptrend, as the S&P500 ($SPX) added 0.4% last week and financial media began hyping the “new bull market” with prices up 20% from the October 2022 low.

SPX Price & Volume Chart for the Week of June 11 2023

No change in signal from the ADX or price/volume; both show uptrends as of Friday’s close.

Bullish and bearish Elliott Wave counts continue to play out, leaving the overall signal mixed.  Both views show a completed uptrend from the March low, increasing the probability of a correction over the next month or so.

SPX Elliott Wave Analysis for the Week of June 11 2023

The bullish count has the necessary requirements for a completed Minor 1 wave.  A Wave 2 correction typically retraces 61.8% to 78.6% of the first wave.

SPX Elliott Wave Analysis for the Week of June 11 2023

Reviewing the checklist from last week’s bearish count also shows the SPX met the criteria for completing the current wave (Minute [v] / Minor C):

• Rally up w/ an overbought RSI(5) reading = Minute [iii] wave – check
• Fall back toward 4231 = Minute [iv] wave – check
• Rally / bounce w/ a negative divergence in the RSI(5) = Minute [v] wave – check

Watch for a bearish MACD cross-over in the daily charts to confirm the end of the rally.

COMMENTARY
Heading into this week, the SPX is flirting with a new high for the year.  Meanwhile, the SPX’s volatility index ($VIX), or so-called “fear gauge”, is at a new low.  This means that expectations for a large downside move within the next 30-days are at their lowest point this year.

In fact, fear is so low that financial media is falling all over themselves to call the start of a new bull market.  Historically, cover stories are great contrarian indicators.  Just saying…

Against all odds and recession fears, the market can’t stop climbing. Better yet–it just might keep going. In this issue: pic.twitter.com/UXiWxtX7PN

— Barron’s (@barronsonline) June 10, 2023

https://platform.twitter.com/widgets.js

With that backdrop, there’s a big potential for volatile market action because each day has potential market moving events!

On Monday and Tuesday, the U.S. Treasury conducts the first bond issuance to refill the TGA, to the tune of $296B.  That’s about 1/3 of the total $750B needed within the next 3-4 months.

TSY issuance Mon/Tues next week starting off spicy at $296B …. pic.twitter.com/eoVgHb8S40

— Christian B. Drake (@HedgeyeUSA) June 9, 2023

https://platform.twitter.com/widgets.js

Recall from last week’s note that the 2 key unknowns were the size of the offerings and which institutions were buyers.  Restoring the balance sheet in large chunks creates larger capital flows (i.e. bigger reductions /sales of other assets).  Now we need to watch who’s buying.

Also on Tuesday, the BLS releases May inflation data (CPI), following by PPI on Wednesday.

The latest will they/won’t they rate debate ends on Wednesday afternoon, when the U.S. FOMC announces its latest interest rate decision.

On Thursday, data is released for retail sales, initial jobless claims, and import/export pricing.

And we close out the week with a quadruple witching day on Friday, with option expiration across all durations.

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 4th = Uptrend

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

ANALYSIS
The stock market outlook maintained an uptrend, as the S&P500 ($SPX) added 1.8% last week.  That said, stocks are beginning to show overbought signals.  Stay frosty, and watch your indicators for confirmation of any trend changes.

SPX Price & Volume Chart for the Week of June 4 2023

The ADX is bullish, inline with the end of May rally.  The bullish directional indicator (DI+) nearing 40 is an overbought signal, and usually precedes a reversal or correction.

Price and volume remain continue to signal an uptrend as well.  Index rebalancing contributed to last week’s distribution day, so it’s less impressive than the volume would suggest.3

Elliott Wave counts were in need of an overhaul in response to the push higher last month, but the signal remains mixed.  Thanks to the range bound price action over the past 1.5 years, the overlapping waves made the analysis difficult at best.

One aspect of Elliott Wave that isn’t mixed is the RSI(5) indicator.  Regardless of viewpoint, the RSI(5) is signaling overbought and suggests another pullback or correction is near.

SPX Elliott Wave Analysis for the Week of June 4 2023 – Bearish Count

Long term, the bearish wave count shows the SPX in the middle of a running or expanded flat pattern, which happens when price moves sideways and volatility declines.  These patterns have B-wave that terminates higher than the start of the A-wave, which was the February 2nd peak at 4195.  The target for Intermediate (B) is 123.6% of Intermediate (A), or 4286.   For reference, a 161.8% retracement would be 4434, and the August 2022 peak was 4325.

SPX Elliott Wave Analysis for the Week of June 4 2023 – Bullish View

The long-term, bullish count shows a the market in the first Minor wave of Intermediate (3).

The daily views don’t show a negative divergence in the RSI(5) yet, suggesting that the SPX is in the middle or 3rd wave off the recent low (4100) rather than a final or 5th wave. Look for a negative divergence in the RSI to develop in the RSI as confirmation.

SPX Price & Volume Chart for the Week of June 4 2023 – Bearish View

For the bearish count, the Minute [iv] wave drops the SPX back to toward 4231 (Minute [i] peak), and then back towards 4300 to complete Minute [5] / Minor C.  If the rally is truly complete, expect to that peak confirmed by a bearish MACD x-over with a week or so.

SPX Elliott Wave Analysis for the Week of June 4 2023

The price levels are the same for the bullish count, just with Minutte waves rather than Minute.

COMMENTARY
Headline employment data continues to show a relatively healthy labor market.  JOLTS and NFP numbers were better than expected, although the overall unemployment was slightly higher than expected at 3.7% (+20 basis points or 0.2%).  Keep in mind that employment data is a lagging indicator and typically starts to weaken AFTER the economy is already weakening.  Leading indicators, such as the yield curve, are well into slowdown territory.

A light week for economic data releases, but there could be some issues below the surface of financial markets.  Now that the debt ceiling is done and dusted, the U.S. Treasury should start reversing the extraordinary measures used to bridge the funding gap (i.e. drawing funds from the Treasury General Account).  In other words, the government bonds need to be issued / sold, with those proceeds replenishing the TGA account balance.

Per the Financial Times, “restoring a healthy balance…will require about $750bn of Treasury bill issuance over the next 3 to 4 months”, with the total amount at ~$1 trillion.  Money to buy these bonds will come out of other financial instruments, and the fear is that stocks, as an asset class, will be sold in order to fund the purchases.

Make no mistake; liquidity flows will change as a result of the offerings, and that creates volatility.  The key questions are how quickly the balance sheet is restored (e.g. a few large offerings, or many small ones), and which institutions are buyers.  The answers to those unknowns will determine just how much volatility our portfolio’s experience.

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 May 28th = Uptrend

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

ANALYSIS
The stock market outlook maintained an uptrend, with the S&P500 ($SPX) ending the week with a 0.3% gain.

The ADX is bullish, as is price/volume.  Distribution days are elevated (>5); something to keep an eye on.

Elliott Wave remains mixed.  There’s no stand-out case to be made at this point, so it’s best to let the market come to us on this signal.

COMMENTARY
Short trading week this week, and a short/late blog post this week on account of the Memorial Day holiday.

Last week, Nvidia blew out earnings estimates and raised guidance.  An impressive feat, given the lower performance from the competition (Intel, Advanced Micro Devices, Micron, etc.).   And the BEA publish April PCE, which was higher than expected.

Over the weekend, a high level agreement on the debt ceiling was reached.  Now it needs to pass through Congress…easier said than done these days.

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 May 21st = Uptrend

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

ANALYSIS
The stock market outlook shifted to an uptrend last week, with the S&P rallying on talk of a U.S. debt ceiling resolution and dovish comments from the Fed chairman.

The S&P500 ($SPX) ended the week up 1.6%, after reaching a new high for the year at ~4213. Cycle to date (i.e. since the bear market began in January 2022), the index is:

• • -13% since the cycle peak (Jan 2022)
  • +20% from the cycle low (Oct 2022)

SPX Price & Volume Chart for the Week of May 21 2023

The ADX is bullish to start the week, with some signs of strengthening trend from the main indicator.  Don’t read into that too much, since it’s coming off cycle lows, as well as lows for the year, and hasn’t surpassed April levels even though the index is higher (negative divergence).

Price/volume shifted to an uptrend thanks to Wednesday’s rally on “above-average” trading volume.  The FFTY index continues to lag, struggling to move beyond the 50-day moving average.

SPX Elliott Wave Analysis for the Week of May 21 2023 – Bullish Count

Elliott Wave remains mixed, but not for lack of trading action. The SPX broke the 4196 resistance level by a few points, invalidating the prior bearish count. And the MACD shows a bullish cross-over occurred mid-week. That would typically be enough to shift the signal. However, the recent consolidation / wave extensions forced updates to both the bullish and bearish counts, and neither has an edge. Even without adjustments, there’s a potential negative divergence in the MACD histogram despite the bullish cross-over, as well as the RSI(5).  So the signal remains mixed.

COMMENTARY
The market signals FINALLY picked a side! Let’s see how long it lasts. The biggest concern for the stock market outlook is the index itself; specifically increasing concentration risk (i.e. a few really big companies accounting for all of the price movement).

Looking at the performance of the FFTY index (50 best “innovation”/”growth” companies) reveals that companies leading the market higher aren’t the typical “leading” stocks (i.e. small cap companies with cutting edge / innovative technology).  This is mirrored in a general sense by the relative underperformance of a small cap index (i.e. Russell 2000) versus a large cap index (i.e. S&P500).

But even within large cap indexes like the S&P500, price action is driven by a handful of stocks, resulting from increasingly lopsided market cap weightings.

For instance, last week’s gains were driven by stocks within the Technology ($XLK), Communications ($XLC), and Consumer Discretionary ($XLY) sectors.

S&P Sector Price Charts for the Week of May 21 2023

Per Hedgeye, the two largest market cap stocks (Apple & Microsoft) account for 14% of $SPX’s weighting.  Not to mention that Apple’s market capitalization is now greater than the entire Russell 2000 index!

And which sector is home to Apple and Microsoft? Technology ($XLK)…the best performer.  In fact, 8 of the 10 largest companies in the $SPX drive performance in those 3 sectors:

• Technology ($XLK)
  • Apple, Microsoft, & Nvidia ($AAPL, $MSFT, $NVDA)
  • ~54% of the sector ETF
• Communications ($XLC)
  • Google & Meta ($GOOG , $GOOGL, $META)
  • ~51% of the sector ETF
• Consumer Discretionary ($XLY)
  • Amazon & Tesla ($AMZN, $TSLA)
  • ~40% of the sector ETF

Meanwhile the Energy ($XLE) and Industrial ($XLI) sectors have underperformed, price-wise, even though they’ve generated a majority of the $SPX earnings growth this year. Consumer discretionary is pulling it’s own weight so far.

But technology and communications?  They’re firmly in an earnings contraction, and are where a majority of recent layoffs have been centered.  Not exactly the “growth” engine you’d expect for a new bull 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, 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.