The Safe Investing Blog

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

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

ANALYSIS
The stock market outlook continues in an uptrend to start the month of March, as a majority of indicators flipped back to to bullish on Friday.  Mixed economic data and negative profit margins don’t inspire much confidence either.  So if you decide to deploy your capital, do so with caution.

The S&P500 ($SPX) rose 1.9% for the week, bouncing off the 200-day moving average on Thursday and reclaiming the 50-day moving average on Friday.

SPX Price & Volume Chart for the Week of March 05 2023

The ADX directional indicators flipped back to an uptrend Friday, after whipsawing twice last week.  The indicator itself declined since first turning bearish 2 weeks ago, suggesting weakening price trends.

The price & volume signal switched back to an uptrend on Friday as well, as the SPX climbed back above the 50-day. The low level of trading volume accompanying the moves on Thursday and Friday is concerning, suggesting that institutional buying was not the reason for the jump higher.

Although the market reversed higher, as expected by the Elliott Wave analysis last week, the signal remains mixed; no change in key levels from last week (3765 and 4196).

SPX Elliott Wave Analysis for the Week of March 05 2023 – Bearish Count

Based on the price action last week, the subdividing count took over for the diagonal count, with a completed Minor 1.  A Minor 2 can be expected take the SPX back towards the February high (4196) in 3 waves.

SPX Elliott Wave Analysis for the Week of March 05 2023 – Bullish Count

After reviewing the long term counts (see updates below), the short-term waves for the bullish count needed to be promoted one level higher, going back to October, in order to stay synchronized. So Minute [ii] Minor 2 completed at the 61.8% retracement level on Thursday. A typical 3rd wave is 1.618 times the size of the 1st wave, putting an initial Minute [iii] Minor 3 target at 4,626.

COMMENTARY
Economic data releases were basically flat (i.e. little to no change), yielding no clear direction for the state of the economy.  Of course, traditional financial media had not problem spinning each release in the direction they’re currently favoring, which doesn’t help your decision making.

As of Friday, most of the S&P500 companies have reported earnings:  revenue/sales are up 5.6% year over year, while earnings are down 2.9% (per Bloomberg).

As discussed in prior blog posts, sustained inflation would eventually create negative profit margins when a company’s costs rose faster than their prices. During 2022, profit margins declined y/y, but remained positive; companies offset higher costs of doing business with higher prices on goods and services.

Now we look to for inflation to impact the revenue/sales side of the equation, when customers can no longer afford the higher prices and/or cut back on spending all together.

This week, potential market moving events center on employment:  job openings (JOLTS) on Wednesday and non-farm payrolls (NFP) / unemployment data 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

Long-Term Elliott Wave Updates for March

SPX Elliott Wave Analysis for the Week of March 05 2023 – Primary Y (Bearish)

SPX Elliott Wave Analysis for the Week of March 05 2023 – Primary 1 (Bullish)

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Not a recommendation to buy or sell any security.

Stock Market Outlook entering the Week of February 26th = Uptrend

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

ANALYSIS
The stock market outlook still shows an uptrend, but signal strength waned over the past week.  Since 2 of the 3 signals showing “mixed”, there’s no confirmation of a trend change yet, so the existing trend stays in place.

The S&P500 ($SPX) fell 2.7%, with most of the damage done on Tuesday.  With the index unable to maintain 4080, the 50-day moving average provided support on Wednesday and Thursday, with help from the 200 day moving average on Friday.

SPX Price & Volume Chart for the Week of February 26 2023

The ADX flipped to a bearish reading on Tuesday’s down draft, while price/volume shifted to mixed.  Tuesday’s trading volume was slightly below the prior session, so it isn’t technically a distribution day.  That said, the session wasn’t bullish either.  With price sitting below the 50-day the signal shifts to mixed, rather than a downtrend, thanks to the lack of distribution days.

Elliott Wave remains mixed; no change in key levels from last week (3765 and 4196/4325).

SPX Elliott Wave Analysis for the Week of February 26 2023

The bearish diagonal count from last week was revised one level higher, with the market in the Minute [v] wave of Minor 1.  It’s also possible that the Minute [iii] subdivided, which would put the market in Minutte [v] .   This count shows a bounce to 4088 (the Minutte [i] low) is likely, before the market heads lower.

The RSI divergence correlates to completed 5th waves, so the Minor 1 count is most likely. For both bearish counts, 4196 is the max for Minor 2.

SPX Elliott Wave Analysis for the Week of February 26 2023

For the bullish count, the Minute [ii] wave reached typical Fibonacci levels. As mentioned above, an RSI divergence correlates to completed 5th waves, so a Minute [3] rally could start at any time.

In either case, remember that corrective waves are typically large and short, in terms of price movement and timeframe.  So if you’re bearish, the next wave (Minor 2) will move like the Minor 2 last September.  If you’re bullish, the Minute [iii] will move like the Minute [iii] from late October-early November.

COMMENTARY
The high level economic data released last week was bearish, showing lower GDP growth and higher inflation.

Revised Q4 GDP came out on Thursday, lowering data by 0.2% (+2.7% versus the initial estimate of +2.9%, on an annualized).  On a year over year basis, Q4 GDP growth was revised lower as well (from 1.0% to 0.9%).

January PCE data was higher than expected (hawkish), with headline data increasing 5.4% year over year vs. expectations of 5%.  Core figures came in at 4.7% y/y vs 4.3% expected.

Adding to last week’s releases, there’s a bunch of economic data coming out this week, including durable goods, pending home sales and price indexes, Consumer Confidence, ISM manufacturing and services data to name a few.  More that enough to muddy the waters even more.

More earnings on the way:

https://pbs.twimg.com/media/Fpwe9mCXEAEZxnn?format=jpg&name=large”

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 February 19th = Uptrend

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

ANALYSIS
The stock market outlook remains in an uptrend and appeared to find technical support at the 4080 level during Friday’s session.

For the week, the S&P500 ($SPX) fell 0.3%, but remains above the 50 and 200 day moving averages.

SPX Price & Volume Chart for the Week of February 19 2023

As mentioned last week, the 4080 level provided a battleground for closing prices, going all the way back to August of 2022.  After breaking above that level early this month, it now serves as a support level in technical analysis terms.

The ADX and price/volume action remains bullish, with only a couple of distribution days in the past 5 weeks.

Elliott Wave remains mixed. The bullish count aligns with the market outlook signals (ADX/Price Volume), and the bearish count aligns with macroeconomic data. No change in key levels from last week (3765 and 4196/4325).

SPX Elliott Wave Analysis for the Week of February 19 2023 – Bullish Count

The bullish count puts the index in a corrective Minute [ii] wave. Typical retracement would be between 38.2% and 61.8% of Minute [i] (~4030 & ~3930 respectively), but could drop all the way to 3764 (100% retracement).

SPX Elliott Wave Analysis for the Week of February 19 2023 – Bearish Count

The bearish count shows an expanding leading diagonal pattern for Minute [i], which suggests a test of the 4000 level next week (roughly the 50-day moving average).  A Minute [ii] wave would then bring the index back towards recent highs (~4196), before entering Minute [iii] and heading lower.

COMMENTARY
January CPI data was higher than expected. I assumed stocks would sell off, but prices barely budged. Instead, it was Thursday’s higher than expected PPI data for January that that soured the mood of investors.  That, combined with 0DTE trading and hawkish commentary from Fed governors sent the stock market lower.

Speaking of other “surprises”:  almost 85% of the S&P 500 has reported earnings for Q4.  Many financial media sources point out that earnings have surprised to the upside verses expectations and aren’t as bad as feared, causing stocks to rally year to date.

Do yourself a favor:  look beyond the headline numbers, which are “adjusted” earnings.  I mean, what would your financial situation look like if you could “adjust” away all your major expenses each year?  GAAP earnings are the version used for Q/Q and Y/Y comparisons, as well as any fundamental analysis.  And GAAP earnings are down 29% year-over-year, and it’s the 3rd straight quarter of negative YoY growth!

Looking ahead, a short week of trading; U.S. markets are closed on Monday for President’s Day. The BEA updates Q4 GDP on Thursday, following by PCE data on Friday.Q4 earnings reports continue to roll in:

https://twitter.com/eWhispers/status/1626939580313387009

Best To Your Week!

P.S.  Here’s a potential contrarian and totally unofficial indicator for you: blog traffic. Typically, site traffic peaks when people are extremely bearish.  Right now, traffic is barely a trickle, with some days registering zero activity, which is indicative of extreme bullishness.

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 February 12th = Uptrend

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

ANALYSIS
The stock market outlook continues in an uptrend, while looking for technical and economic support this week.

The S&P500 ($SPX) fell 1.1% last week.  The 4080 level provided a key support and resistance battleground for closing prices, going all the way back to August of 2022.  After breaking above that level early this month, the index now needs its support.  A corresponding increase in SPX volatility has the $VIX testing resistance at its 50-day moving average as well.

SPX Price & Volume Chart for the Week of February 12 2023

The ADX and price/volume action remains bullish despite last week’s losses.

The Elliott Wave signal remains mixed, with 3 small waves clearly visible (Minutte or Subminutte).  A bearish MACD cross-over suggests further downside ahead, but less than a point of overlap isn’t enough to confirm anything.

SPX Elliott Wave Analysis for the Week of February 12 2023

Key levels remain 3765 and 4325, although a move above 4195 requires another relabeling of the bearish count.

COMMENTARY
Powell’s Tuesday speech generated a bit of intraday volatility, but otherwise 0DTE options trading and earnings announcements pushed prices around.  Even within a given sector, earnings continue to be a mixed bag.  Some firms outperform ($UBER), others not so much ($LYFT).

Looking ahead to this week, on Tuesday at 8:30am, Cupid delivers the January CPI report.  If data comes in higher than estimates, equities probably head lower as the market reprices the possibility of a higher rate hike at the next Fed meeting (0.5% instead of 0.25%), and begins accepting there won’t be any rate cuts this year.  If data is lower than expected, equities ramp higher as markets price in a pause in rate hikes at the next meeting.

For what it’s worth, treasury yields (particularly the 3 month & 2 year) spiked last week, indicating that someone is betting on higher for longer.

And last but not least, another round of earnings followed by monthly options expiration on Friday.

Earnings for the Week of February 13 2023 – Source: earningswhispers.com

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 February 5th = Uptrend

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

ANALYSIS
The stock market outlook starts February with an uptrend signal.

The S&P500 ($SPX) rose 1.6% for the week.  The index sits 4.5% above the 50-day and 4.7% above the 200-day, with those moving averages putting in a golden-cross midweek.

SPX Price & Volume Chart for the Week of February 05 2023

The ADX shows a strengthening bullish trend, and price/volume action indicates a high level of institutional buying last week.

The Elliott Wave signal moves to mixed, after the SPX rallied above 4100 and invalidated the prior, bearish wave count.  The two alternative counts from last week (one bearish, one bullish) are now the primary candidates.

SPX Elliott Wave Analysis – Week of February 05 2023 – Bearish Count

SPX Elliott Wave Analysis Week of February 05 2023 – Bullish Count

Clearly a bullish trend since October, but no confirmation of a new bull market or a continuing bear-market bounce.  Within the criteria of the example process for these blog posts, Elliott Wave isn’t providing much guidance…and serves as another of why multiple signals/duration are beneficial.  Looking ahead, a drop below 3765 is needed to invalidate the bullish Minor 3 and validate the bearish count.  Conversely, rising above 4325 invalidates the bearish Minor C.

COMMENTARY
Tuesday’s 0.25% rate hike and FOMC press conference had something for doves and hawks, bulls and bears.  The bears and hawks heard “higher for longer” and the potential for future increases. But U.S. stocks responded to Powell’s dovish statement that “financial conditions had tightened considerably”, and prices rallied on a bullish view that statement corresponded to future easing of interest rates and qualitative tightening.

Powell has another chance to manage his message this Tuesday, when he sits down for a discussion David Rubenstein at the Economic Club of Washington, D.C. (12:40pm)

Friday’s non-farm payrolls report surprised everyone to the upside; +517K jobs versus estimates of +185k.  Unemployment fell to the lowest level since 1969 (3.4%)!  Media used the numbers as proof the labor market is strong and we’re headed for a soft-landing and/or no recession.  They neglected to mention all of the adjustments that were made to the NFP data, including: the annual benchmarking process, the NAICS 2022 conversion, the updating of seasonal adjustment factors, and updated population estimates.

Underneath the economic data, market participants witnessed another record level of trading in equity options.  Thursday’s trading session, in particular, was the highest volume EVER.  As in never seen before…not during the tech bubble, not during the great recession…that kind of ever!

Without getting too technical, option activity doesn’t normally influence market pricing in a major way.  As liquidity is withdrawn from the financial system, institutional investors use leverage to compensate.  Currently, they’re exploiting a loophole in brokerage rules to add leverage to their option strategies (and options are already leveraged instruments).  The added leverage forces dealers to buy and sell an abnormally large amount of the underlying stocks and indexes, thereby abnormally influencing market volumes and pricing.  T1 Alpha has been all over the 0DTE phenomenon since October-November of 2022, and their free daily newsletter the source material for the above summary.

Meta/Facebook earnings were the star of the show last week, while Apple and Alphabet underperformed.  A similar divergence occurred in the automotive space, with GM crushing estimates and Ford missing the mark. More earnings are on the way this week, including:

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 January 29th = Uptrend

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

ANALYSIS
No change in the stock market outlook; an uptrend signal remains in place as we close out January.

The S&P500 ($SPX) rose 2.5%, and broke above the long-term trendline that’s acted as resistance since January 2022 (~16% decline).  The index is up 6% for the month/year, with 2 trading days left in January.  The NASDAQ was up 4.3% for the week, and sites 11% higher this month.

SPX Price & Volume Chart for the Week of January 29 2023

The index found support at both the 50 and 200 day moving averages last week. The ADX and price volume signals continue to show bullish trends, and we’re seeing a low level of institutional selling (only 3 distribution days over the past 5 weeks).

SPX Elliott Wave Analysis for the Week of January 29 2023

The Elliott Wave signal remains bearish; though rising above 4100 invalidates the current Minor 2 wave count.  The SPX wasn’t quite ready to head back toward the October low, putting in a head-fake 2 weeks ago and heading higher.  A second wave can retrace 100% of a Wave 1 advance, so no relabeling of the waves just yet.  Instead, two alternative counts (one bearish, one bullish) are presented at the end of the post for consideration.

COMMENTARY
So…GAME OVER bears? Sure feels that way…but feelings have no place in your investing process. So let’s look at the data.

2022 Q4 GDP showed an annualized increase of 2.9% (BEA”s “advanced” estimate). On a year-over-year basis, GDP rose +1.0% vs. 2021 Q4, which is the smallest Y/Y increase this year.

December data for Consumption Expenditures (PCE) “dropped” to +5.0% Y/Y (vs. +5.5% in November). Core PCE came in at +4.4% Y/Y, down from +4.7% in November. For some perspective, 1989 was the last time Core PCE was at these levels. Care to guess how high the interest rates were? The Fed Funds Rate averaged 9.2% in 1989 (HT Hedgeye).

So U.S. economic data releases were middle of the road; nothing REALLY good or bad. Market participants took this as a sign that the Fed will be dovish at their meeting this week, in terms of their interest rate policy, and the broader indexes rallied.

That said, a ridiculous amount of option volume didn’t hurt either; a quick look at U.S. Equity Options Volumes (NYSE), Friday’s session saw the third highest trading volume since late 2019…regardless of type (weekly, monthly, quarterly).  I suspect that the ranking applies even further back, but the data isn’t immediately available.  0DTE index options played an oversized role (again).  The takeaway is that leverage, via options, supports the recent rally, rather than underlying fundamental or economic changes.

Another big earnings week coming up.  So far, ~25% of the S&P500 has reported Q4 earnings; Sales growth is up ~5%, earnings growth is down ~3%.

More importantly, at least from a market perspective, is the FOMC meeting this week (Tuesday) and subsequent interest rate announcement and news conference (Wednesday).

Earnings don’t move the overall market; it’s the Federal Reserve Board… focus on the central banks, and focus on the movement of liquidity… most people in the market are looking for earnings and conventional measures. It’s liquidity that moves markets.
–Stanley Druckenmiller

In my opinion, the bear market isn’t over; it’s hibernating.  But as Ed Seykota said, “The trend is your friend…until the end when it bends.”  So far, the data from January says the trend is up.

Best To Your Week!

Extended Intermediate (X) Wave (Bearish Alternative)

Primary [1] In Progress (Bullish Alternative)

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 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 January 22nd = Uptrend

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

ANALYSIS
The stock market outlook continues with an uptrend, with 2 of 3 signals showing bullish price action.

The S&P500 ($SPX) ended the week 0.7% lower, with the long-term downtrend continuing to act as resistance.  Thanks to year-end consolidation, the SPX now has a shallow uptrend as well.

SPX Price & Volume Chart for the Week of January 22 2023

In terms of moving averages, the 200-day continues to provided resistance, while the 50-day moving average switched to a support role since November.

The ADX and price volume signals continue to show bullish trends.

SPX Elliott Wave Analysis for the Week of January 22 2023

The Elliott Wave signal remains bearish.  The current count suggests the beginning of a Minor 3, which would take the SPX back to the October low.  On the flip side, rallying back above 4100 would be extremely bullish and require a relabeling.

COMMENTARY
Apologies for the short/late post last week. After a weekend trip, I returned to a cold home and a busted furnace. A good reminder that owning a home has a lot of positives, but it definitely meets the definition of a liability from a personal finance perspective.

The technical set-up (noted above) looks promising, but underlying economic data isn’t keeping pace. For instance, Wednesday’s sell-off coincided with the release of December retail data, which showed sales falling 1.1% month over month. Retailers like Macy’s ($M), Kohl’s ($KSS), Nordstrom ($JWN), etc., rely heavily on the holiday season for annual profitability; so much so that “Black Friday” gets its name from the expectation that it’s the day that puts retailers into the “black” for the year (i.e. negative numbers / losses in red ink, positive numbers / profits in black ink). This year, the hope was that holiday sales would eliminate high inventory levels…profitability would be a welcome bonus.

You probably heard something about the U.S. debt-ceiling last week as well. On Thursday, the Treasury announced that the U.S. exceeded its self-imposed debt limit of $31.4 trillion. Now, the Treasury will enact so-called “extraordinary measures,” to meet financial obligations. Per the Brookings Institute, the U.S. debt ceiling has been raised 20 times since 2001…basically once a year. Since the debt ceiling comes from Congress, there’s a lot of rhetoric and posturing until the very last minute and then a deal gets pushed through. With regard to investing, it’s basically a nothing-burger until the June/July timeframe.

And on Friday, monthly options expired.  Normally, quarterly option expiration is all that’s worth mentioning (i.e. triple/quadruple witching days), but over the past year, the influence of non-quarterly opex has increased. In fact, $1.3 trillion worth of options were in play on Friday, which is the biggest non-quarterly expiration EVER.  That’s a lot of leverage, and definitely impacts volume/price movements.

Behind the scenes, so to speak, YOLO option trading has gone from retail traders to institutions, from WallStreetBets to Wall Street.  Market makers and institutions are exploiting a loophole account financing using index options; specifically the daily contracts, which are called Zero Days ‘Til Expiration or “0DTE”.

Source: Rocky Fishman – Goldman Sachs

If an institution opens and closes a trade intraday, no additional collateral is required because the account balance doesn’t change at the end of the day when the books are closed.  In the end, it’s another form of leverage, used to buy a levered instrument, to exploit intraday price movement, which ultimately moves intraday prices thanks to the volume of trades…what could go wrong?

Earnings season is in full swing this week, after an underwhelming start.  So far, ~10% of the S&P500 reported Q4 results.  Sales are up ~7%, while earnings are down ~6%.  Those figures broadly align with the higher prices / higher costs theme resulting from inflation. On Friday, we get December data for Consumption Expenditures (PCE); the Fed’s preferred measure of inflation.

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 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.