The Safe Investing Blog

Stock Market Outlook entering the Week of April 2nd = Uptrend

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

ANALYSIS
The stock market outlook starts Q2 in an uptrend. The question is how long it will stay that way.  The S&P500 ($SPX) continues to trade above the 50 and 200 day moving averages, but only managed to climb 0.1% for the week.  During the first quarter of 2022, the index dropped ~4.6%.

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

Two of the three indicators used for the stock market outlook (ADX & price/volume) remain bullish.

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

Elliott Wave shifts to mixed, with the current wave count suggesting the downtrend is back underway or will be shortly. The SPX met retracement requirements for a typical B-wave, so Tuesday’s high could mark the end of the bear-market rally.

There wasn’t a divergence in the RSI or the MACD.  Even though divergences aren’t a must-have, they’re useful confirmations.  The RSI actually made a higher high, which is usually associated with a 3rd wave. That’s shown in the chart and puts the SPX in a Minute [iv].

Based on that analysis, I’m looking for one more run at the 4650 – 4670 before the Minor C / Intermediate B-wave completes.  A drop below 4300 invalidates the [iv], and means that Tuesday’s high was indeed the completion of Intermediate B and the uptrend.

COMMENTARY
Guessing you heard something about the yield curve last week? If not, the “tens and twos” inverted, meaning that the yield on the 10-year treasury note was lower than the yield on the 2-year treasury note.

Normally, financial conditions farther out into the future are more uncertain, which means more risk of loss. To compensate, investors require higher yields. When the curve (or sections of it) inverts, the bond market expects higher uncertainty in the near term.

Right now, the curve appears to be adjusting to the Fed’s rate hike plans. The 3-month sits just above the rate set by the Fed (~.25%) and the 2-year yield is ~2.45%, which is basically where the Fed wants to be after all their rate hikes.

Last week’s jobs report contained all kinds of “positive” information: unemployment fell to 3.6%, average hourly earnings increased by 5.6% year-over-year, and labor force participation is climbing. These figures will be used as a sign that the economy is doing well, supporting the Fed’s planned rate hikes.

But you know the name of the game is really GDP.  If GDP is on the rise, then tightening monetary conditions will be uncomfortable but tolerable; the so-called “soft landing” mentioned by the talking-heads.  If GDP is dropping, then tightening monetary conditions will be very painful and cause a lot of asset classes to lose value.  In that case, better to run through your diversification checklist and resulting asset allocations before that happens.

In terms of stocks, you may find some cover in sectors like consumer staples, health care, and utilities, but that’s not a guarantee.  Each cycle is different.

And diversification doesn’t necessarily mean you’ll make money; sometimes you’ll just lose less. It’s all relative. If you reference the S&P500 like most investors, then a 5% drop in the SPX is your baseline for Q1, for example. If your portfolio only lost 3%, you actually outperformed the SPX by 2%. Diversification achieved!

Finally, sometimes cash is your best/only choice.  And while it’s true that adjusting for inflation means cash is losing value, that same adjustment makes losses in the stock market even worse.

Best To Your Week!

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

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

ANALYSIS
The stock market outlook uptrend designation remains in place for a second week, with the S&P500 ($SPX) rising 1.8%.  Can we make it three in a row?

The index rose above the 200-day moving average and stayed there.  And the three indicators (ADX, price/volume, and Elliott Wave) show bullish price action in place.  Looking good so far, but a deeper look reveals concerning undercurrents.

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

The biggest issue is trading volume, which decreased throughout the week.  If you discount the quarterly, monthly, and weekly option expiration on March 18, trading volume has fallen for almost the entire uptrend!  Rising prices on decreasing volume is a sign of weakness, not strength.  When there’s a lack of sell order volume, it takes a relatively low level of buying to clear out those orders and move prices higher.

SPX Elliott Wave Analysis for the Week of March 27 2022

From a technical analysis standpoint, the SPX is knocking on the door of the resistance levels mentioned last week.  The 61.8% Fibonacci retracement sits 7 points above Friday’s close of 4543, and that’s a stone’s throw away from the early February resistance at 4595.  A negative divergence in the RSI(5) also popped up last week as the market made new highs.

COMMENTARY
As of Friday’s close, the SPX sits ~9% from the mid March low. Essentially, the market has halved it’s losses from the start of the year despite all the geopolitical turmoil and interest rate variability!  Mega-cap tech stocks also rebounded nicely the past 2 weeks (e.g. $AAPL, $GOOGL, $AMZN, $TSLA, etc.).

But the gains aren’t evenly distributed.  If you look at sector performance for Q1, energy ($XLE) is by far the star, gaining ~39%.  Since the S&P is down ~5%, that means it’s outperformed the index by 44%! Utilities ($XLU), and financials ($XLF) also outperformed, while telecom ($XLC), consumer discretionary ($XLY), and real estate ($XLRE) underperformed.

As we head into Q2, remember that most companies will have extremely tough year-over-year comparisons to overcome, in terms of revenue and profitability.  This is especially true for sectors like technology ($XLK) and consumer discretionary ($XLP).  And most “passive investors” are overexposed here, because the mega-cap stocks in these sectors make up a large part of most capitalization-weighted index funds.

So regardless of whether you’re bullish or bearish overall, last week was an excellent time to reallocate holdings.

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 March 20th = Uptrend

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

ANALYSIS
Yes, you read that correctly.  The stock market outlook shifted to an uptrend after a vicious bear market rally.

The S&P500 ($SPX) soared 6.2% last week, breaking through a downward trendline and recapturing the 50-day moving average.  The index starts this week just below the 200-day moving average, since the 50 & 200 crossed the week prior.

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

The ADX directional indicators flipped on Friday, so the ADX signal switches to bullish.

Price and volume moves back to an uptrend, after reclaiming the 50-day moving average on massive volume.  Granted, that volume came on massive options expiration ($3.5 trillion), but the signal is the signal. This time around, the case for an uptrend was supported by leading stocks breaking out of proper price patterns.

SPX Elliott Wave Analysis for the Week of March 20 2022

For Elliott Wave, last week’s rally broke through resistance at 4415 and invalidates the prior wave count as well as several other potential bearish counts.

After a lot of back and forth, I’m not sure what the count is at the moment. There are bearish counts that show the SPX is “correcting” higher in the overall bear market.  There’s a bullish count showing the entire Primary 2 correction is over.  It’s possible, but not probable, given the current headwinds facing stocks. The jump in RSI reading shows a shift in price action,and the signal turns to an uptrend heading into this week.

It’s not clear if the worst has past or if this is just the eye of the storm, so to speak.  Best hypothesis is that we’re in the eye of the storm. In terms of Fibonacci levels, a B-wave (if that’s what we’re in) typically retraces 38% to 79% of Wave A.  Key levels to watch are 4550-4600 for resistance and 4158 for support.

COMMENTARY
As mentioned last week and the week prior, the 0.25% rate hike announced by the U.S. Fed was totally expected.  The fact that we did not get any surprises (i.e. 0.5% rate hike, more than a hike a meeting) was seen positively by market participants.

Shorter term, ~3.5 trillion dollars worth of options expired last week (weekly, monthly, and quarterly expiration).  This is probably the main driver of last week’s melt-up in stocks (versus the rate hike or any geopolitical news).

Even though the signal switched to an uptrend, keep an eye on your holdings.  If you haven’t done so already, use the current strength to your advantage and rebalance your holdings.  Q2 earnings season is going to be difficult for many companies, particularly technology-related names.

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 March 13th = Downtrend

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

ANALYSIS
No change in the stock market outlook; the downtrend remains firmly in place.

The S&P500 ($SPX) lost 2.9% last week, and starts this week 6.4% below the 50-day moving average and 6.2% below the 200-day.  All three signals continue to show bearish trends unfolding.

SPX Price & Volume Chart for the Week of March 13 2022

The ADX is bearish and shows that trend is actually strengthening(!). Analyzing price and volume action shows institutional selling continued to accelerate as the market dropped early last week. One bit of bullish news was that trading volume decelerated as the market fell on Friday.

SPX Elliott Wave Analysis for the Week of March 13 2022

Elliott Wave shows the SPX moving through Minor 5 of Intermediate (3). Price levels to watch are 4417 on the upside and 4115 on the downside.

COMMENTARY
February CPI data was published last week and prices rose 7.9% year over year (Core CPI came in at 6.4%).  The previous reading was 7.5%, showing the inflation continues to accelerate.  And this reading DOES NOT take into account the recent moves in energy.

The new fed funds rate will be announced on Wednesday (2pm), followed by Fed Chair Jerome Powell news conference at 2:30 pm.  As mentioned last week, a 0.25% rate hike is largely priced in, so I expect any volatility to be short lived.

I thought we’d start to see year-over-year inflation readings start to decline by now, but I also thought that Russian wouldn’t invade Ukraine.  Both examples highlight the need to remain open to possibilities and adjust based on what “is” happening and how that will impact the future, versus what you think “should” be happening.

With that in mind, here’s something to watch as we move forward this year.  Ukraine / Russia are major exporters of wheat, corn, barely, and sunflower oil.  Spring planting season is just around the corner, and it’s not clear how large of an impact the war will have on Ukrainian farming.  Russia, on the other hand, faces sanctions that decrease global supply, especially if those sanctions remain in place come harvest 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 March 6th = Downtrend

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

ANALYSIS
The stock market outlook “downtrend” signal continues, after another week of geopolitical turmoil.

The S&P500 ($SPX) lost 1.3% for the week, and currently sits ~4% below the 50-day moving average and 3% below the 200-day.  The index briefly broke above the downward trendline after trading opened on Thursday, but quickly reversed lower.

SPX Price & Volume Chart for the Week of March 06 2022

The ADX signal shows a strong bearish trend.  Price and volume continues to show a downtrend as well, with the SPX below the 50-day moving average, several distributions days, and limited signs of accumulation from institutions.

SPX Elliott Wave Analysis for the Week of March 06 2022

Elliott Wave continues to show a downtrend.  The Minor 4 wave may have ended Thursday.  That count would be invalidated if the SPX rallies above the Minor 1 low (4451.5).  Positive divergences developed in the RSI and MACD; the first “green shoots” we’ve seen this spring.  As mentioned last week, the current bearish count is invalidated if the SPX rises above 4450.

COMMENTARY
Russia intensified its attack on Ukraine last week. Since we live in a connected society now, instability in one region affects us all more acutely than in years past. Most of the world is concerned about the humanitarian impact the conflict, and looking for ways to help.  I’ve read stories about people using renting rooms and homes in Eastern Europe using AirBnB, as a way to get quickly get money directly to Ukrainians in need.

On the economic front, the immediate reaction to the war is the mooning of energy and commodity prices. Oil jumped 25%, copper rose ~10%, the Energy Select Sector SPDR Fund (XLE) was up 9.2%.

Utilities (XLU) also “benefited”, but otherwise there’s a LOT of red out there.

The U.S. jobs report showed 678,000 jobs added to the rolls in February; consensus estimates were looking for 390,000. That’s a pretty big beat, and brought the unemployment rate down to 3.8%. U.S. Fed Chairman testified last week too, doing about as much as humanly possible to announce a 0.25% rate hike without actually announcing it.

At this point, a rate hike next week is probably “priced in”, so we shouldn’t see too much volatility when it’s actually announced.  But all signs point to the Fed increasing interest rates into an economic slowdown (i.e. GDP falling year over year, which would create more headwinds for markets to overcome.

Investing during the early 2020s has required a different mindset than investing in the 2010s. We’re still dealing with supply chain issues from the pandemic that started 2 years ago, so it’s quite possible that we’re still dealing with the ripple effects of the war long after the shooting stops.  It’s not clear when sanctions will be lifted either; they could get worse before they get better.

The only thing that is certain is that our path forward is uncertain.  Uncertainty breeds volatility, and volatility is not something we had a lot of in the past decade.  You’ll need to revisit your position sizing rules, in terms of how much you’re willing to lose before exiting a trade.  You may need to lower your position size to feel comfortably weathering larger swings.

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 February 27th = Downtrend

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

ANALYSIS
The stock market outlook remains in a downtrend, although stocks rebounded broadly to close the week.

Despite the Russian invasion of Ukraine, the S&P500 ($SPX) actually ended up 0.8% last week after a massive rally on Thursday that spilled over into Friday.  The index currently sits ~2% below the 200-day moving average and ~4% below the 50-day.

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

The ADX signal continues to show a bearish trend in place, and has done so since the directional indicators crossed over on January 4th.

The price/volume signal also shows a downtrend.  Distribution days have come in pairs since late January, so the selling hasn’t been THAT bad.  Rather, a lack of buyers seems to be the issue.

Not surprisingly, the price charts of leading companies look awful; very few are showing price patterns associated with accumulation.

SPX Elliott Wave Analysis for the Week of February 27 2022

Elliott Wave continues to show a downtrend.  The potentially bullish count bit the dust last week, while both Bearish counts remain in play.

SPX Elliott Wave Analysis for the Week of February 27 2022

Some people have said last week’s low was the bottom (i.e. the entire ABC correction).  I’m skeptical, but will trade based the price and volume action.  Both bearish counts are invalidated if the SPX rises above 4450.

COMMENTARY
The situation in Ukraine went from bad to worse, as cooler heads did not prevail.  Something changed in the Russian calculus, where an actual invasion / occupation of Ukraine is beneficial.

The U.S. and European countries imposed economic sanctions on Russia’s financial and technology sectors, although oil and energy were not included (yet).  As of this weekend, certain Russian banks are set to be expelled from SWIFT, the highly secure global network used for global financial transactions.

The conflict is still in the early stages, and so far, the long-term impact to the U.S. markets appears to be limited.  That said, the U.S. economy already faced significant challenges that aren’t made any easier by the conflict.

The U.S. yield curve continues to flatten, as the bond traders come to grips with upcoming Fed rate hikes and higher levels of inflation.  Watch for an inversion (long-term higher than short term), which would indicate lower expectations for future growth and has a good track record of being a leading indicator for recessions.

I’m reminded of a line from the movie “National Treasure”:  “Cooperation only lasts as long as the status quo is unchanged“.   Unfortunately, the status quo has changed.  The longer this conflict drags on, the more former areas of cooperation are at risk.

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 February 20th = Downtrend

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

ANALYSIS
The stock market outlook remains in a downtrend after another down week for U.S. equities. The S&P500 ($SPX) briefly reclaimed the 200-day moving average mid-week, before plunging back below that level ahead of the long weekend. The index currently sits ~5% below the 50-day moving average and 2.5% below the 200-day.

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

The ADX signal continues to show a bearish trend in place. A few more distribution days fell off the count, but the price/volume signal still shows a downtrend too.

Elliott Wave also shows a downtrend, with two possible counts depending on your level of bearishness. I discovered a bullish count as well…possible, but not probable as of today.

SPX Elliott Wave Analysis for the Week of February 20 2022

The first bearish count has the market in the 3rd wave ( Minor 3 ) of the first down wave of Primary [2] (Intermediate (A) ). This count implies the downtrend is just getting started. This count would be invalidated if the SPX rises above 4450.

SPX Elliott Wave Analysis for the Week of February 20 2022

The second bearish count has the market in the 3rd wave (Minor 3) of the third down wave of Primary [2] (Intermediate (C) ). This count implies the downtrend is more than halfway complete. This count would be invalidated if the SPX rallies above 4450.

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

And the bullish count shows the SPX completed the entire Primary [2] back on Jan. 24th, and is currently working through the first correction of the new uptrend (The Minor C wave of Intermediate (2) ). This count would be invalidated if the SPX falls below 4222.

COMMENTARY
The Russia-Ukraine situation continues to drive uncertainty into the markets, with each day seeming to to unearth a new set of will they/won’t they narratives.

Russia’s a global player in the energy market, so it’s no surprise that a potential conflict is driving up energy prices. Terrible for consumers and inflation; great for investments allocated to the energy sector.

No surprise rate hike from the Fed’s emergency meeting last week, which is a good thing. And the hysteria around a potential half point rate hike died down as well.

But the Fed’s job doesn’t get any easier, as each of the next 4 weeks has potentially market moving data releases. First, we’ll have to see what happens on Thursday (24th) when GDP is released. Keep in mind that the change verses last year is the most important number, as it will tell us if growth is starting to slow.

Shortly thereafter is the next jobs report (Friday, March 4), and then the next inflation reading (Thursday, March 10). All of which will need to be digested by the Fed, prior to releasing the actual size of the next interest rate hike on March 15-16th.

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.