The Safe Investing Blog

Stock Market Outlook entering the Week of January 15th = Uptrend

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

ANALYSIS
The stock market outlook flipped to an uptrend last week.

The S&P500 ($SPX) rose 2.7%, climbing past the 50-day moving average and taking aim at the 200-day.

SPX Elliott Wave Analysis for the Week of January 15 2023

The ADX signal remained in bullish territory, while price and volume moved into an uptrend on Wednesday.

SPX Elliott Wave Analysis for the Week of January 15 2023

Elliott Wave analysis remains bearish.  RSI(5) shows the index is overbought, and MACD crossover is less bullish than it would appear due to low volume consolidation over the holiday period.  Reclaiming 4100 would likely change to this indicator back to bullish.

COMMENTARY
Short week (markets closed Monday in honor of MLK), short post!

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.

Stock Market Outlook entering the Week of January 8th = Downtrend

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

ANALYSIS
The stock market outlook starts the week in a downtrend, but could swing to an uptrend with a bit more positive momentum.

The S&P500 ($SPX) kicked off 2023 with a win, getting back to the 50-day moving average with a gain of 1.8% during its first week of trading.  Looking back to 2022, the index ended the year down a smidge over 18%.

SPX Price & Volume Chart for the Week of January 08 2023

The ADX reading flipped to bullish and price/volume starts the year mixed, thanks to Friday’s strong price action.  The move qualified as a “follow-through” on the rally attempt that started December 29th. As a reminder, a “follow-through” is defined as:

• >1.5% price increase
• Higher than average trading volume
• 4-10 days after a rally start

Why “mixed” and not an uptrend?  Because the index remains below the 50-day moving average.  A move above that level on heavy volume will change the signal, and could come as soon as Monday.

SPX Elliott Wave Analysis for the Week of January 08 2023

Elliott Wave analysis received an update, but remains bearish.  The set-up looks similar to the late August / early September in terms of the indicators (i.e. counter-trend rally / Minor 2, price near the 34-day moving average, MACD approaching a cross-over).

SPX Elliott Wave Analysis for the Week of January 08 2023

The longer-term view of Elliott Wave continues to match-up well with the wave count posted last May.

COMMENTARY
Happy New Year and a warm welcome to 2023!  We’re back in the saddle after some much needed time off.  Hopefully you used the weekly outlook to protect your capital in 2022, or at least limit the damage.  2023 promises to be a harder trading environment than last year, thanks to the coming earnings recession, elevated inflation, and reaction to Fed policy, so buckle up.

Recapping last week’s rally, Friday’s jump coincided with Non-Farm Payroll (NFP) and “ISM Services” reports. First, December Non-Farm Payrolls were higher than expected, with unemployment at a 50-year low, but down a bit from November. Sort of not too hot, not too cold.

Perhaps more importantly, December U.S. ISM Services showed a contraction in December! Per Hedgeye, one specific data point stood out: “New orders (a gauge for future demand) fell close to -20% to 45.2”! Why would a contraction be bullish? Because market participants interpreted that data as a sign the Fed will reverse interest rate hikes soon. Yes, they’re still hoping for a pivot.  And you already know hope is not an investing strategy.

If the Fed is to be believed, a pause is coming at some point this year. But one data point won’t shift the policy, even if it’s in the required direction.

Speaking of the Fed, we’ve got some event risk on tap this week, starting with Fed Chair Powell speaking at the Sveriges Riksbank International Symposium on Central Bank Independence, in Stockholm, Sweden on Tuesday.  Then on Thursday, December CPI data is released prior to market open.

And if that’s not enough, earnings season kicks off this week with heavyweights in the banking sectior: JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C). Factset analysts expect S&P500 companies to report a combined earnings decline of -2.8% for Q4 2022 (i.e. the start of that earnings recession).

Best To Your Year!

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 December 18th = Downtrend

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

ANALYSIS
The stock market outlook slides back into downtrend with two weeks left in 2022. Two of the three signals are now bearish, and price/volume isn’t far behind. Considering how marginal the signal was the prior week, you probably took action already. Right?

The S&P500 ($SPX) fell ~2% last week, dropping back to the 50-day moving average, after moving above the 200-day moving average and challenging the long-term trendline earlier in the week.

SPX Price & Volume Chart for the Week of December 18 2022

The ADX reading is back to bearish, after rebounding slightly.

Price and volume shifts to mixed, with the SPX looking for support at the 50-day moving average.  Friday’s trading volume comes with an asterisk, thanks to another “quadruple witching” day. 4 TRILLION dollars options expiration tends to have that effect.

SPX Elliott Wave Analysis for the Week of December 18 2022

The bear market rally fell apart last week, confirming the end of the Intermediate (X), counter-trend rally. Elliott Wave analysis shows the SPX in a 3rd wave, tentatively labeled as Minute, with resistance at 3918 (Minute [i] low).

COMMENTARY
CPI data for November came in below expectations, continuing to show inflation peaked earlier this year and heading in the right direction.  Headline inflation increased 7.1% year-over-year, versus an expectation of 7.3%. Core inflation increased 6.0% , slightly below the forecast of 6.1%.  Definitely good news, but the year over year figures are still too high, opinions on Fed policy notwithstanding.

Speaking of the Fed, they raised rates by 0.50% (as did the Bank of England and the European Central Bank, in case you were wondering).  The FOMC press conference was more of the same; journalists STILL trying to tease out a timeline for the Fed to pivot (i.e. pause rate hikes or cut interest rates).

November retail sales fell more than expected, month-over-month (-0.6% vs -0.15%).  Black Friday and Cyber Monday weren’t as impactful this year, as many retailers started their sales early in an attempt to clear out inventory.  Regardless, that’s not indicative of a strong consumer, and won’t be kind to Q4 earnings.

A full week of trading this week, but expect lower trading volume as the weekend approaches.  Christmas falls on Sunday this year, so no market update next week.  The markets are closed the next day (Monday, December 26) in observance of the holiday. And New Year’s Day is the following Sunday (2 weeks from today), and the markets will be closed the following Monday (January 2) as well.

Merry Christmas, Happy Holidays, and 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.

Stock Market Outlook entering the Week of December 11th = Uptrend

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

ANALYSIS
The stock market outlook stays in an uptrend by the tiniest of margins, while U.S. market participants await the next shoes to drop (inflation data and a rate hike).

The S&P500 ($SPX) fell 3.4% last week, dropping below the 200-day moving average.  The index failed to breakthrough a long-term, bearish trendline dating back to mid-January, instead breaking the recent bullish trendline from October-November.

SPX Price & Volume Chart for the Week of December 11 2022

The ADX shifted to mixed, with DI indicators essentially overlapping and the indicator itself falling below 20.  It’s as close to a bearish as you can get without flipping the signal.

Price/Volume shows a small amount of distribution last week.  The signal is still in an uptrend per the criteria, but trading action is similar to the beginning of last downtrend (mid-August).

SPX Elliott Wave Analysis for the Week of December 11 2022

Elliott Wave remains bearish, as it has for the entire rally.  The ending diagonal pattern (mentioned last week) fell apart when the SPX dropped back to 3900 and the 34-day moving average. Adding the negative MACD cross over and RSI divergence added insult to injury.

Upon further review, I overlooked a subdividing Minute [iii] wave (mid-November).   A similar pattern emerged in early October during the Minor A wave: volatile, 1-day waves for Minute [i] and [ii], followed by a subdivided Minute [iii].  The fractal nature of market price movements means patterns often repeat themselves, and that’s the case here as well.

The refreshed count reveals the 5-wave Minute pattern ended at the high on December 1st, which also marks the end of a Minor C.  Most importantly, the completion of the 3-wave Minor pattern marks the end of the Intermediate (X), counter-trend rally.

Labeling reversals in market direction is challenging.  At the moment, last week’s price action matches a pattern that played out the week of August 22, so Tuesday’s low is likely the first Minute wave of the next phase of the bear market.

COMMENTARY
Last week’s November Producer Price Index (PPI) data was higher than expected on a month over month basis, but shows inflation pressure easing from a year over year view.

This is good news for Main Street; PPI measures “the average change in the selling prices received by domestic producers for their output over time”, so we’re paying less for goods and services.

This is bad news for Wall Street; falling PPI generally means lower earnings for public companies, because: (Price – Cost) * Quantity = Profit.  Companies reduce price to maintain or increase volume, which can be done much faster than reducing costs (e.g. labor or supply chain contracts).  Referencing the final point from last week’s post,

…[Q3] profit margins (earnings) shrank as companies accounted for higher costs for raw materials, debt financing, and labor. Those costs will ultimately determine the type of recession we experience in 2023.

More data is on the way this week, so buckle up! Tuesday (Dec 13th), we get CPI data for November.  Wednesday (Dec 14th), we get the Fed’s decision on the latest interest rate hike at 2:00pm EST, followed by the FOMC press conference at 2:30pm.  U.S. retail sales data for November hits the wires Thursday.

And last but not least, Friday is weekly, monthly, and quarterly option expiration.

Some food for thought regarding price patterns mentioned above: After the last market top in mid-August, the market fell below the 13-day moving average on increased but below-average trading volume.  That sell-off generated a negative cross-over in the MACD indicator.  Then the SPX rallied slightly, only to sell-off on August 26 in response to hawkish comments from Powell at the Fed’s Jackson Hole press conference.  Entering this week, you’d be forgiven if you had a sense of deja vu; the only thing we’re missing is a low volume rally followed by a hawkish speech from the Fed…

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.

Stock Market Outlook entering the Week of December 4th = Uptrend

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

ANALYSIS
The stock market outlook stays in an uptrend, with the same characteristics mentioned last week; an aging, counter-trend rally with weak signal strength.

The S&P500 ($SPX) rose 1.1% last week, closing just above the 200-day moving average.  The index is now ~7% above the 50-day and starts the week at a long-term trendline dating back to mid-January.

SPX Price & Volume Chart for the Week of December 04 2022

The ADX and price & volume continue remain bullish but weak (ADX @ 20, trading volume below average).  The SPX registered 1 distribution day over the past 5 weeks, which would be great if trading volumes weren’t so low.

Elliott Wave analysis still shows the SPX in the final stage of the Intermediate (X), counter-trend rally, but the Minute [v] wave count from last week required adjustment because of how far the market sold off Monday and Tuesday.  As of today, the Minutte waves appear to form an ending diagonal pattern (3-3-3-3-3).

SPX Elliott Wave Analysis for the Week of December 04 2022

It’s also possible that the entire Minor C wave is an ending diagonal, which would cause a relabeling of the Minute waves. That pattern needs a few more days before it can be confirmed (i.e. a test of the 4000 price level).

COMMENTARY
Just like last year, an early December speech by the Fed chair sent investors scrambling.  Only this time around, the bears ran for cover.  There was nothing new in the speech verses Powell’s prior statements.  It’s investors who have lowered the bar for what passes as bullish commentary. Chairman Powell confirmed a 0.5% rate hike in December, along with the “higher for longer” narrative, while conceding that Fed policy decisions show up in data with a lag.

Thursday’s PCE data showed that the Fed’s favorite inflation measure remained high in the month of October, although it did retreat from September’s increase.

The personal savings rate for October also came out Thursday, showing a drop to 2.3%, which is the second lowest reading since 1959 (July 2005 was the all time low at 2.1%).

Last but not least, Friday’s payroll data surprised to the upside, on both employment and wages, despite recent layoffs in the tech sector.

In summary, rate hikes decreased inflation readings since the June peak, and energy prices also retreated.  Consumers maintained spending levels using a combination of personal savings and credit card debt.  And overall unemployment remains near historical lows. So far, that sounds a lot like a soft landing for main street, which also shows up in continued top-line growth for Wall Street (i.e. corporate revenue).

That said, profit margins (earnings) shrank as companies accounted for higher costs for raw materials, debt financing, and labor.  Those costs will ultimately determine the type of earnings recession we experience in 2023.

Best To Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Federal Reserve Bank of St. Louis, Hedgeye, U.S. Bureau of Economic Analysis, U.S. Bureau of Economic Analysis

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.

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

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

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

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

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

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

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

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

SPX Elliott Wave Analysis for the Week of November 27 2022

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

SPX Elliott Wave Analysis for the Week of November 27 2022

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

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

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

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

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

Best To Your Week!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Federal Reserve Bank of St. Louis, Hedgeye, U.S. Bureau of Economic Analysis, U.S. Bureau of Economic Analysis

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.

Stock Market Outlook entering the Week of November 20th = Uptrend

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

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

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

Technical analysis of daily SPX prices

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

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

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

SPX Elliott Wave Analysis for the Week of November 20 2022

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

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

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

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

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

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

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

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

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

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

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

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

Best To Your Week and Have a Happy Thanksgiving!

P.S. If you find this research helpful, please tell a friend.
If you don’t, tell an enemy.

Sources: Bloomberg, CNBC, Federal Reserve Bank of St. Louis, Hedgeye, U.S. Bureau of Economic Analysis, U.S. Bureau of Economic Analysis

Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com is subject to our Terms of Service and Privacy Policy.

Not a recommendation to buy or sell any security.