The Safe Investing Blog

Stock Market Outlook entering the Week of July 10th= Downtrend

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

ANALYSIS
The stock market outlook remains in a downtrend, although the markets show some bullish momentum.

The S&P500 ($SPX) is making a second attempt to break-through the resistance zone created by the May lows.  Basically, the index is back to where it was 2 weeks ago, just with less trading volume.  Institutional investors and hedge funds like to front-run technical price levels (e.g. trendlines and moving averages), so keep an eye on volatility this week.

SPX Price & Volume Chart for the Week of July 10 2022

The ADX is still bearish and price/volume remains mixed.  The latest rally moved off life-support, since the SPX got back above the follow-though price level.  But isn’t out of intensive care yet.  Trading volume took a vacation last week, and the index still has those two distribution days.

SPX Elliott Wave Analysis for the Week of July 10 2022

The Elliott Wave signal is the first to shift to an uptrend, thanks to the “higher low” last week and an update to the count.  This bear market has been hard to map, let alone trade.  Think of this as another chance to redeploy capital and/or limit losses into a counter-trend move, not an all-out, risk-on rally.  Support is the new “higher low” at 3739, while resistance remains at 3945.

COMMENTARY
A holiday shortened trading week was probably something everyone needed, and it showed with trading volume running well below average.  The best performances came from heavily shorted stocks and/or those with high beta.  And big moves on low volume in those sectors is typical of short-covering rallies.  Going into the week, most hedges were shorting the major U.S. indexes (S&P500, NASDAQ and Russell 2000).  The narrative was that traders were TOO bearish ahead of earnings season, so they took advantage of the holiday week to make changes.

The June jobs report was better than expected.  The U.S. economy created 372,000 jobs, which was much higher than the consensus estimate for 270,000.  Hourly earnings from May were in-line with estimates, and up slightly year over year.  If the Fed were to meet tomorrow, this data justifies another 0.75% rate increase.  But any and all data released prior to their next meeting could be enough to shift policy.

At this point, “peak” inflation is likely priced into the market.  That’s does NOT meant that the financial markets have priced a relatively high level of inflation over a sustained period of time.  For example, commodity prices may be falling from their peaks, but it takes time for those declines to work through supply chains.  Therefore, recession metrics and earnings/guidance will have the bigger impact on market direction for the rest of the year.

Best To Your Week!

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

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 3rd = Downtrend

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

ANALYSIS
A downtrend for the stock market outlook remains in place to start July. The S&P500 ($SPX) couldn’t get past the resistance zone created by the May lows, ending the week down ~2%.

SPX Price & Volume Chart for the Week of July 03 2022

We didn’t get any strong up days last week, so the ADX stays bearish. Price/volume remains mixed, with the latest attempt on life support after the index closed below the follow-through day on Thursday.  Trading volume remains an issue, and the index picked up two distribution days already.

SPX Elliott Wave Analysis for the Week of July 03 2022

Elliott Wave remains mixed.  Depending on how you interpret the waves, the SPX could be in the second wave of a bear market rally or the third wave of another wave down.  Benefit of the doubt goes to a bear market rally, thanks to positive divergences in both RSI and MACD.  3636 support and 3945 resistance are validation levels.

COMMENTARY
Summer trading is in session and with it lower volume. Thursday was an exception, likely caused by a final round of quarter-end performance adjustments from hedge funds.  They’re not doing so well this year, but that’s true of most investors.

U.S. markets are closed Monday in observance of Independence Day.  Unemployment and hourly earnings data are release this week. Otherwise, it should be the calm before the storm, with earnings season starting the week of the 11th.

Best To Your Week!

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

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 26th = Downtrend

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

ANALYSIS
A downtrend for the stock market outlook remains in place the last week in June, with price action looking similar to the end of May.

The S&P500 ($SPX) rose a little more than 6%, but remains ~4% below the 50-day and ~13% below the 200-day. Friday’s strong move put the SPX into the middle of a resistance zone created by the May lows.

SPX Price & Volume Chart for the Week of June 26 2022

The ADX stays in bearish territory for now.  Another strong up day this week likely flips the signal to bullish.

Price/volume moves to mixed, with a follow-through on Day 4 of the latest rally attempt (Day’s 4 through 10 is the window for confirmation). Unfortunately, there are issues. Ideally, a rally begins with the index above the 50-day moving average. The index remains below that level, which creates overhead resistance for any fledgling uptrend.

More concerning than the price level is the trading volume. Both the rally start and the follow-though came on higher than average trading volume, but not because traders were bullish or fundamentals supported those moves. Instead, trading volumes were elevated by market “events”; quarterly options and futures expiration (quadruple witching day) and index rebalancing, respectively.

SPX Elliott Wave Analysis for the Week of June 26 2022

Elliott Wave also shifts to mixed, thanks to the MACD divergence finally showing up.  It’s very small, but it’s there, so another bear market rally is in play.  The SPX retraced ~50% of the June early to mid June drop, which is the minimum retracement for a 2nd wave.  The maximum would be 100%, or the June high near 4200.  Passing that level invalidates the current count, but not the bear market downtrend.

COMMENTARY
Summer started last week, and with it a relatively quiet time for the market, in terms of data.  Earnings season starts in 3 weeks, and trading volume around the 4th of July holiday in the U.S. is traditionally low.  Maybe buyers will be able to bid up the price and we see a face-ripping, bear market rally?  Maybe not.

As Mark Douglas states in his book “Trading in the Zone”, the first fundamental truth of trading is “Anything can happen”.

Best To Your Week!

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 19th = Downtrend

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

ANALYSIS
The stock market outlook downtrend continues, following last week’s sell-off.  The S&P500 ($SPX) tried to recover midweek, but gapped down Thursday before the open, and basically stayed at that level through Friday.

SPX Price & Volume Chart for the Week of June 19 2022

The index ended the week ~6% lower, and sits ~12% below the 50-day and ~20% below the 200-day.  For a bit of context, at the height of the COVID crash, the SPX was about 36% below the 200-day; the Great Recession reached 66%, while the Dot.com crash hit 37%.

The ADX and price/volume signals are bearish, and Elliott Wave is back to a downtrend.

Between the Fed meeting and the massive option expiration, the stage was set for a potential rally back to resistance near 4400.  Instead, the pre-market gap-downs on Monday and Thursday increased the probability that the “3-wave pattern” completed in early June (verses the prior count that put the index in the middle of that pattern).

SPX Elliott Wave Analysis for the Week of June 19 2022

The good news?  Regardless of which count prevails (both are still possible at this point), the market is due for a counter-trend rally.  The 3600 level is prior resistance turned support (August 2020), and a positive divergence developed in the RSI as well, so maybe this week will give traders some relief.

Before you break out the champagne, keep in mind that the bear market is just getting started…the SPX hasn’t even reached the 38% retracement level yet.

SPX Elliott Wave Analysis for the Week of June 19 2022

COMMENTARY
As expected, a lot of volatility last week. Things kicked off with a bang, with another cryptocurrency-related blow-up. This time it was an exchange (Celsius) halting all withdrawals from its platform. Unfortunately, blow-ups like this will occur more frequently as liquidity is removed from the system (i.e. qualitative tightening).

Then “someone” leaked that the Fed was likely to hike interest rates by 0.75%, rather than the 0.5% they forecast in May. The rumor quickly spread, and basically became a sure thing in the eyes of most financial media. They even debated whether the Fed should raise by 1% or more! On Wednesday, the Fed did raise rates by 0.75%, citing recent inflation data shifting their view.

Back in reality, the near-term impact to inflation is minimal, and that wouldn’t have changed if the Fed hiked rates 2%! Markets would’ve dropped bigly, but inflation? Not so much. For the rest of the year, supply and demand factors are pretty much locked in. Even if we’ve already seen “peak” inflation, the numbers will remain high for a while, so strap in.

The situation isn’t any better across the pond, as the European Central Bank (ECB) did an about face and is now set to raise interest rates. The ECB confirmed a 0.25% hike in July (its first increase in more than a decade), and hinted at a larger increase in September if inflation remains high.  And just like the U.S., the hikes are in spite of the fact that the Euro-zone is experiencing an economic slowdown.

A short trading week in the U.S., with the markets closed for Juneteenth National Independence Day, to celebrate the end of slavery in the United States.

Best To Your Week!

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 12th = Downtrend

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

ANALYSIS
The stock market outlook remains in a downtrend after a dramatic sell-off on Thursday and Friday.  The S&P500 ($SPX) ended the week ~5% lower, and sits ~14% below the 200-day and ~8% below the 50-day.

SPX Price & Volume Chart for the Week of June 12 2022

The ADX signal remains bearish, after coming ever so close to reversing last Tuesday.  The price & volume signal moves back to a downtrend, after picked up two distributions days.

SPX Elliott Wave Analysis for the Week of June 12 2022

Elliott Wave puts the SPX in the last leg (Minor C Wave) of Intermediate (B). The RSI is already in oversold territory, so watch for a positive divergence in the MACD to develop as the market bottoms, similar to the price movement in early march.

COMMENTARY
The latest U.S. consumer price index (CPI) readings were released Friday morning, and came in higher than expected (again). We’ve now reached inflation levels unseen since December on 1981, all while real wage growth continues to slow!

• Month over Month
  • Headline:  +1.0%  vs  +0.7% expectation
  • Core:          +0.6%  vs  +0.5% expectation
• Year over Year
  • Headline:  +8.6%  vs  +8.3% expectation (a new, 41-year high)
  • Core:          +6.0%  vs  +5.9% expectation (also a new high)

This print guarantees the Fed will raise interest rates during the policy meeting later this week. Now the question is whether they stick to the 0.5% rate hike schedule they discussed last time around.

The situation isn’t any better across the pond, as the European Central Bank (ECB) is also set to raise interest rates into their own economic slowdown. The ECB confirmed a 0.25% hike in July (its first increase in more than a decade), and hinted at a larger increase in September if inflation remains high.

Adding more uncertainty (i.e. volatility) this week is Friday’s quadruple witching day, with quarterly, monthly, and weekly options set to expire. I’ve read that ~$3 trillion worth of contracts are in play, which is more than enough to impact prices.

Longer term, things continue to weaken for retailers. Three weeks ago, Target (along with Walmart) reported a big earnings miss, and reduced their earnings guidance for the year. Last week, Target announced actions to reduce inventory levels by reducing prices and canceling orders. They also lowered operating margin estimates for the quarter. The ink is barely dry on the first guide down!   It makes me wonder what’s in store for us when the next earnings season kicks off in about 1 months time.

Best To Your Week!

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 are 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 5th = Downtrend

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

ANALYSIS
The stock market outlook maintains a downtrend signal, with the S&P500 poised for a repeat of February’s price action. The S&P500 ($SPX) fell 1.2% last week, struggling to break through resistance between 4100 and 4200.

SPX Price & Volume Chart for the Week of June 05 2022

The ADX remains in downtrend. The index couldn’t generate enough upward price movement to shift the directional indicators, though both fell throughout the week.

Not much happened on the price/volume front, with only 1 session of above average trading volume in the past 2 weeks.  The lack of a high-volume follow-through day last week lowers the probability of success for the latest rally attempt.

SPX Elliott Wave Analysis for the Week of June 05 2022

Elliott Wave shows 5-waves up and a negative divergence in the RSI, supporting the completion of an Intermediate (A).  Intermediate (B) would head back towards the May low, with the MACD putting in a positive divergence (e.g. early March). Then it’s back toward the mid-4000s for Intermediate (C) and the final leg of this year’s second bear market bounce.

COMMENTARY
Adding to recent commentary on spending levels and consumer strength, several analysts trotted out wage growth as another sign that the consumer is just fine. Why? Everything else being equal, rising wages correlates to rising spending, which should maintain economy growth. The problem is that “everything else” is definitely not equal right now.

Inflation is running higher than wage growth, which means that your costs are increasing faster than your income. You have more money coming in, but more money is going out even though you’re not buying more stuff.  And THAT is the critical factor most analysts aren’t mentioning.  The economy grows when consumption of goods and services increases…not spending on goods and services.

Semantics, they say. Wrong. If you’ve bought gas this year, you know what I’m talking about. You’re buying the same amount of gas, but it costs twice as much as it did last year. So your spending increased, but not your consumption.  If anything, you’re looking to reduce consumption as much as possible.  And that’s NOT a recipe for economic growth.

Businesses experience similar issues, so be on the lookout for companies taking down their guidance.  Earnings season just ended and companies are already making negative revisions for the next one (e.g. Microsoft)!

Best To Your Week!

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 are 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 29th = Downtrend

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

ANALYSIS
The stock market outlook shows a downtrend is still in place, despite the bear market rally.

The S&P500 ($SPX) jumped 6.6% last week, erasing almost a third of its total loss for the year.  The index now sits ~13% off it’s high for the year, 7% below the 200-day moving average and only 3% below the 50-day.  It closed in a critical zone, in terms of support and resistance, with the start of the March rally (support) creating a solid resistance level.

SPX Price & Volume Chart for the Week of May 29 2022

The ADX signal remains in downtrend, but could flip if we see a more up days this week.

The S&P 500 showed a small amount of accumulation last week, so the price & volume signal shifts to mixed.  The index picked up a follow-through day on Thursday, four days after the May 20th bounce, which is the earliest possible confirmation of a rally.  That said, it’s a weak set-up based on below average trading volume and remaining below the 50-day.  A high volume follow-through this week would be a better signal.

SPX Elliott Wave Analysis for the Week of May 29 2022

Elliott Wave also shifts to mixed, and gets a new count/wave structure to go along with it  (more analysis below, per the usual for the past few weeks).

COMMENTARY
A short week on tap; U.S. markets are closed Monday in observance of Memorial Day.

You’ve heard a lot of commentary about whether or not we’re in a bear market.  Historically, a bear market begins after falling 20% a peak.  But really that’s an arbitrary number; a talking point.

Does something radically change in your process when a market is down 20% vs 19%?  What about when the Nasdaq is down more than 20% but the S&P500 isn’t?  I’m guessing that’s a negative in both cases. 

What does impact your process?  Data.  Like the VIX remaining above 20 during the March rally. Down 20% or not, that’s bear market territory and requires changes.

Speaking of data, what about consumer spending, credit card balances, or savings rates?  After downbeat forecasts from Target and Walmart, many talking heads are seizing the relatively upbeat reports from Macy’s, Nordstrom, and Ralph Lauren as a sign the consumer is still strong, along with spending levels and “high” savings rates. Unfortunately, the difference between the two types of retailers is actually a sign of weakness.

Target and Walmart serve consumers in lower-income brackets, and their reports show a change in spending behavior likely caused by high inflation.  Their customers are also the ones that began tapping credit card balances (with ridiculously high interest rates) to maintain their spending when inflation first began to pick up.

Nordstrom and Ralph Lauren cater to higher-income brackets; the last consumers to feel the sting of inflation and change their spending habits.  Their customers have the highest savings rates, which allows them to maintain spending in spite of higher inflation.

Best To Your Week!

P.S. Based on the analysis shared last week, I updated the waves to show Cycle I ending at the beginning of the year.

SPX Elliott Wave Analysis for the Week of May 29 2022

Something about the wave structure of Intermediate (1) has seemed wrong from the start, especially when zooming out to the weekly view (like we’ve been doing the past few weeks). Maybe it’s just the symmetry of the whole thing, who knows. The pattern that kept popping out to me was 3 waves down, then 3 waves up, then 5 waves down. After last weeks bounce, it made even more sense.

SPX Elliott Wave Analysis for the Week of May 29 2022

That’s actually another type of corrective pattern, called a “flat” (verses a zigzag).  In this case, it looks like an irregular or expanded flat.  It looks like a much better match to the price action and technical indicators.

SPX Elliott Wave Analysis for the Week of May 29 2022

All good right?  Not quite.  Thanks to last week’s rally, this new flat pattern is already complete, implying the whole downtrend is over.  That’s wishful thinking, since the Fed’s quantitative tightening program hasn’t even started yet.  Given the current economic backdrop, a longer-term correction is likely, and a flat pattern enables this type of extended move, called a “double-three” (or even triple if it comes to that).

Double Three Corrective Pattern

Laying in those patterns on the weekly view provides more likely alternatives for the overall bear market.

SPX Elliott Wave Analysis for the Week of May 29 2022

SPX Elliott Wave Analysis for the Week of May 29 2022

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 are subject to our Terms of Service and Privacy Policy. Not a recommendation to buy or sell any security.