The Safe Investing Blog

Stock Market Outlook entering the Week of January 30th = Downtrend

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

ANALYSIS
The stock market outlook is in a downtrend heading into the final trading day of January.

The S&P500 ($SPX) actually gained just under 1% last week, closing near the top of it’s trading range.  The index spent the entire week below the 200-day moving average, but rallied Friday to close the day and the week at that level.

SPX Price & Volume Chart for the Week of January 30 2022

The ADX and price/volume are both showing bearish price action.

For Elliott Wave, the remaining “uptrend” count bit the dust when price fell below 4279 Monday.  That leaves the Primary [2], “crying Jordan” correction.

SPX Elliott Wave Analysis for the Week of January 30 2022

The current count is Minor Wave 5 of Intermediate (1) of Primary [2].  If it holds, I’d expect the price to fall below the Jan 24th low to complete Intermediate (1), and then rally back towards the Jan 3rd high, retracing 38% to 61% of the entire Intermediate  (1) wave.  Important to note that during down waves (2,4), the numbered waves (i.e. impulse waves) are to the downside and lettered waves (i.e. corrective waves) are the uptrends.

One thing to note about downtrends, thanks to the fractal nature of market moves, is time compression during periods of high volatility. When price moves rapidly, time compresses.  So you’ll need to look at multiple timeframes (daily –> hourly or 15 minute) to see some of the waves more clearly on price charts (e.g. Minutte/Minute).

COMMENTARY
A wild week in the markets, with more on the way.  Caution will be the word of the month in February, as investors and traders position themselves for March and beyond.

Barring something catastrophic, March will see Fed-sponsored stimulus end and the first interest rate hike in a LONG time.  The Fed is doing it’s best to give investors a lot of advanced warning.  Based on the market response, they weren’t exactly thrilled.

As we’ve discussed before, less liquidity means more volatility.  Higher interest rates mean a lower value for future cashflows.  The NASDAQs P/E ratio has already fallen from a high near 35 to something closer to 27 on the announcement alone.

There are A LOT of theories about how many hikes in 2022; some are projecting 5!  The number of rate hikes will likely be determined by the overall size of rate hikes.  Five 0.25% rate hikes probably won’t happen…but it’s a lot more probable than five 1% rate hikes.  A 1% rate hike, by itself, is also unlikely.

We know interest rates will rise, so watch GDP.  A combination of rising interest rates and falling GDP is a bearish environment for equities, and add to that the fact that earnings are likely to disappoint because the year over year comparisons now include last year’s reopening trades.

Best To Your Week!

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Stock Market Outlook entering the Week of January 23rd = Downtrend

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

ANALYSIS
The stock market outlook shifted to a downtrend after significant selling took the SPX down more than 5% last week.

The S&P500 ($SPX) found no technical support last week: not at the two trendlines, not at the 50-day moving average, not even at the 200-day.  The higher lows mentioned last week?  Tuesday took care of that trend too, as well a few other things.

First things first, the ADX directional indicators are solidly bearish and showing a strengthening trend.

SPX Price & Volume Chart for the Week of January 23 2022

The price & volume signal moved from mixed to a downtrend on Tuesday, tripping three different alarms.

1. The index made a new lower low (vs Jan 10)
2. The index closed below the follow-through day for the uptrend (Dec 15)
3. The selling came on higher trading volume

The SPX followed that up by closing below the rally starting point (Dec 6), just to make sure traders got the message.  Not that investors and traders needed a reminder, given that most individual stocks, especially technology names, have been selling off for some time now.

SPX Elliott Wave Analysis for the Week of January 23 2022

For Elliott Wave, the 3 most bullish counts bit the dust when the SPX fell below 4495 on Thursday.

SPX Elliott Wave Analysis for the Week of January 23 2022

That leaves us 1 uptrend and 1 downtrend remaining…a mixed signal if there was one.

SPX Elliott Wave Analysis for the Week of January 23 2022

It’s possible that Minor 2 is still in progress. If that count is correct, we’re in the final leg of the sell-off and the SPX won’t get lower than 4279…that’s another 2.5% or so.

SPX Elliott Wave Analysis for the Week of January 23 2022

Or, if the index can’t hold 4279, it’s likely that Primary [1] ended January 3rd and we’re all “crying Jordan’s” in a Primary [2] correction.

SPX Elliott Wave Analysis from 2009 to 2022

If we zoom out, here’s what the long term count looks like at the moment.

COMMENTARY
The 10-year treasury yield spiked last week to a 2-year high, driving money out of stocks (especially the technology sector), and spiking volatility.  While talking heads express shock at the moves, market action is pretty consistent with the beginning of Fed tightening cycles.  Not to mention the uniqueness of the current cycle, coming off of zero and near-zero interest rate policy.

More than likely you noticed the selling a while ago in individual companies.  The indexes were buoyed by megacap’s like Facebook, Amazon, Netflix and Google.

I’m not saying we don’t go lower from here; just that the selling isn’t abnormal from a long term perspective.  Even crypto!

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 January 16th = Uptrend

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

ANALYSIS
The stock market outlook stays in an uptrend, but last week’s trading sessions weren’t exactly bullish.

No all-time high’s last week.  Instead, the S&P500 ($SPX) struggled to clear its 50-day moving average.  The index continues to create higher lows (bullish), so the trendline from the early October / early December lows remains in place, but it’s taken a couple of shots this month. Last week’s lower high is bearish, as is the bearish trendline it creates.

SPX Price & Volume Chart for the Week of January 16 2022

The ADX directional indicators continue to show bearish price action coupled with a weak trend.

For price & volume, the signal is mixed.  The SPX broke through the 50-day on higher volume, and failed to recover.  But the distribution days remain subdued.  Half of the current count is 5 weeks old and will drop out during the coming week.

SPX Price & Volume Chart for the Week of January 16 2022

The Elliott Wave count remains unchanged from last week, but there’s a lot of room for alternate counts at the moment.

COMMENTARY
I received a few emails this week regarding the signals, so I thought I’d provide some answers in this week’s commentary.

Several related to the trendlines; how to draw them and why they’re still green after prices go below the line.   Some people use the highs/lows, some use the opening/closing price, and some use “clusters” of both opens/closes and highs/lows and aim for the middle.

SPX Price & Volume Chart for the Week of January 16 2022

For example, in the chart above there are two bullish trendlines:

1. Off the closes/opens – October 4th close to December 2nd close (4300 to 4513)
2. Off the lows – October 4th to December 3rd (4279 to 4495)

Both show support and lack of support, but the SPX continues to moving higher.

Like all things investing, the problem lies in the exceptions, not the rules. At best, trendlines are general guides, sort of like trail maps. They give you a sense of where you’re headed, but don’t tell you every hill, valley, stream or rock you’ll encounter on along the way. Use them as a quick visual aid to confirm or contradict your analysis, and don’t worry too much about the method. Just pick one and consistently apply it. As you develop your edge, you’ll find the method that works for you, or maybe even decide they aren’t for you at all!

Another set of questions related to Elliott Wave counts and associated price targets. I don’t use Elliott Wave to predict price targets, because we can’t predict…only prepare. And Elliott Wave counts get violated and readjusted all the time!

That said, Elliott Wave helps visualize major market moves (i.e. 3rd waves), and combined with the two other signals, increases the probability that I’ll catch those major moves in either direction.

Right now, several different counts offer different interpretations of the “current state” of the markets. Based on those starting points, each represents possible market price movements, ranging from bullish to bearish.

SPX Elliott Wave Analysis for the Week of January 16 2022

The current count (Bullish / Uptrend) shows the current wave is subdividing, with the SPX hitting a low ( subminutte ii ) on Friday.  This suggests the market will rally higher this week ( Minutte (iii) ), but at a minimum staying above the January 10th low of 4582

SPX Elliott Wave Analysis for the Week of January 16 2022

Another bullish interpretation shows the ( Minutte (ii) ) wave continuing, and the SPX correcting through the January 10th low, but staying above the December 20th low of 4531 and THEN rising higher.

SPX Elliott Wave Analysis for the Week of January 16 2022

A 3rd count shows the uptrend in place, but it isn’t as bullish for this month. Here, the Minute [ii] wave correction didn’t end at the December 20th low.  Instead, that was just the first leg down ( Minutte (a) ), with the SPX then seeing a counter-trend rally into year end ( Minutte (b) ).  Now, the SPX continues lower ( Minutte (c) ), falling past the December 20th low, but staying above the December 3rd low of 4495 to complete Minute [ii], and THEN rallies.

SPX Elliott Wave Analysis for the Week of January 16 2022

The 4th potential count is decidedly more bearish near-term (remainder of January), but still bullish longer-term (Q1).  In this case, the December 3rd low was part of the Minor 1 uptrend (vs the completion of Minor 2 shown in the charts above).  The January 10th low was actually the first leg ( Minute [a] ) of the Minor 2 correction.  In this case, the SPX has a lot more downside, but still stays above the October 4th low of 4279.

SPX Elliott Wave Analysis for the Week of January 16 2022

And finally, the 5th potential count is the most bearish possibility, for both January and beyond.  Here, the prior counts were incorrect and the entire Primary [1] wave actually ended at the January 4th high.  That puts the SPX in Primary [2], which could retrace 50% to 61.8% of Primary [1] (3505 to 3195 respectively).

Whether it’s Elliott Wave, trendlines, or any other technical analysis, there are always multiple settings and timeframes that lead to different interpretations. For example, if you just relied on EW, you could be bullish until the SPX fell below 4279 (~8% from Friday’s close).

If the market sells-off from here and approaches the December 3rd low, I’d expect distribution days to pile up and flip the price/volume signal to a downtrend. In turn, this would shift the overall market outlook, in spite of a longer term bullish view from Elliott Wave. Not a prediction or a call, just a look at how a 3-signal system works.

There’s no one signal that will be correct 100% of the time. It’s why these weekly reporting posts were set-up with three signals, and change when 2 of 3 signals change. In additional to backtesting whatever signals you use, the “majority rules” approach helps avoid a mistake in signal cause you to misread market conditions.

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 January 9th = Uptrend

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

ANALYSIS
The stock market outlook stays in an uptrend, despite a volatile week of trading and a drop of nearly 2%.

The S&P500 ($SPX) managed to hit another all time high on Tuesday, then fell back to and closed at the 50-day moving average. The index sits just above a trendline from the early October lows, and ~6% above the 200 day moving average.

SPX Price & Volume Chart for the Week of January 09 2022

The drop caused the ADX to turn bearish, with the directional indicators crossing over on Friday. The price/volume signal remains bullish, but will shift to mixed if the 50-day doesn’t provide support next week. The number of distribution days remains low, but that could also change if institutional selling continues.

Stock chart with Fibonacci, RSI, and, MACD for daily SPX prices

Elliott Wave still shows an uptrend in place, despite last week’s sell off. Price waves are more pronounced, thanks to the increase in volatility, but the structures are more complex and make wave counting harder.

The SPX fell below the Wave [i] peak.  If that wave is correct, then a) the all time high wasn’t the peak of Wave [iii], and b) Wave [iv] isn’t the current wave. It’s possible that Wave [iii] is subdividing (shown as Wave (i) and Wave (ii) in the chart above). For this count to remain valid, the SPX can’t sink below the Wave [ii] low near 4525.

Unfortunately, there are negative divergences in both the RSI and MACD, which could be signaling a larger decline is underway. If that’s the case, it’s possible that the SPX is still in a less common type of Minor 2 wave (currently shown ending in early December). This count becomes valid if the SPX sinks below 4525.

COMMENTARY
Last week’s sell-off came courtesy of the U.S. Fed, which released minutes from the December meeting on Wednesday. Contained within was not only discussion of accelerated tapering, but also balance sheet adjustments AND a greater number of rate hikes in 2022. These policies lower liquidity in the bond market and raise interest rates on debt. Each of them can be a drag on companies looking to finance future growth…let alone when you combine all three.

Friday’s release of the December unemployment report didn’t provide much support for the Fed’s hawkish stance. Job creation coming in lower than expected and wage inflation coming in higher than expected. Basically this means the economy, while healing from the pandemic, isn’t healthy just yet.

Interest rates broke out ahead of the news (e.g. $TNX). Energy ($XLE) and finance ($XLF) sectors followed suite, while health care ($XLV), technology($XLK), consumer discretionary ($XLY), and real estate ($XLRE) tanked.  If the Fed ends up toning down the rhetoric, expect some reversal here.  They have zero good options to fight inflation right now.

In either case, the tech sector ($XLK) and consumer discretionary ($XLY) were already experiencing higher volatility, so it’s likely that investors were already in the process of repositioning.  Consumer staples ($XLP), industrials ($XLI), and utilities ($XLU) appeared to be the beneficiary so far, at least from an “equities” perspective.  It definitely wasn’t crypto (e.g. $BTCUSD).

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 January 2nd = Uptrend

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

ANALYSIS
Happy New Year!  The stock market outlook begins 2022 in an uptrend, after a fairly quiet week of trading.

The S&P500 ($SPX) eased into the New Year, drifting lower into the close and ending the week up just under 1%.  For the year, the S&P was up 26.9%!  The 6th highest annual return in the past 31 years!

SPX Price & Volume Chart for the Week of January 02 2022

The index sits ~2% above the 50 day moving average and ~9% above the 200 day moving averages.

The ADX shows a strengthening, albeit weak trend, with the directional indicators in bullish territory.  With price above the 50-day moving average and a low number of distribution days, price/volume is in an uptrend.

SPX Elliott Wave Analysis for the Week of January 02 2022

Elliott Wave starts 2022 off in an uptrend as well.

COMMENTARY
The S&P’s performance in 2021 was impressive.  In addition to the annual return mentioned above, the index also avoided pullbacks greater than 5% and reached 70 new all time highs.

That means the S&P spent the entire year within 5% of an all time high, and over a quarter of the year at hitting new record closes (70 days with an all time high / 252 trading days = 28% of the 2021 trading year)!  Buy the Dip indeed.

That’s not to say that everything went up all the time.  Investors saw much more volatility in individual stocks, with many household names underperforming and/or losing money for the year, including Disney ($DIS), Verizon ($VZ), and Merck ($MRK).  And let’s not forget to mention more speculative trades like SPACs or meme themes.

I expect 2022 to underperform versus to 2021, but who knows…stranger things have happened.

Here’s to another year of personal profits through safe investing!

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 December 26th = Uptrend

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

ANALYSIS
The stock market outlook continues to show an uptrend going into the final trading week of 2021.

After a weak opening, the S&P500 ($SPX) rallied into the Christmas Holiday, closing 2.3% higher for the week.

SPX Price & Volume Chart for the Week of December 26 2021

The ADX directional indicators flipped again mid-week, from bearish to bullish. The frequent change in direction (i.e. whipsaws) is the main reasons not to rely on any single signal.

Price/volume is back to an uptrend. The index opened trading below the 50-day moving average, then rallied to an all time closing high on Thursday. Since confirming the rally, the index has 2 distribution days.

SPX Elliott Wave Analysis for the Week of December 26 2021

For Elliott Wave, the signal remains in an uptrend. With the SPX closing at an all time high, probability favors a completed Minor 2 at the December 3rd low.

For the current wave pattern, the typical Fibonacci level for a 3rd wave is 1.618 of the 1st wave, putting the target level for the Minor 3 just above 5200.

COMMENTARY
A surprise to no one, last week’s consumer prices data for November showed increased prices year over year. Spending and income data were also slightly higher.

In spite of these seemingly negative headline numbers, the “Santa Claus” rally appears to be right on time. It’s the traditional post-Christmas rally in stocks, during the final five days of the current year and the first two trading sessions of the new year.

Blessings to you and your families this holiday season. Thank you for the gift of your time each week.

Merry Christmas & Happy Holidays!

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 December 19th = Uptrend

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

ANALYSIS
The stock market outlook maintains an uptrend, though the underlying signal strength weakened last week.

More volatile price action for the S&P500 ($SPX).  As of Friday’s close, the index dropped almost 2%, sitting just above the 50-day moving average.

SPX Price & Volume Chart for the Week of December 19 2021

The ADX directional indicators flipped twice last week; from bullish to bearish on Tuesday, back to bullish Wednesday & Thursday, and then back to bearish on Friday.

The index remains above the 50-day moving average, but a high level of institutional selling moves the price/volume signal to “mixed”.  Wednesday’s follow-through day confirmed a bullish trend. High volume selling returned on Thursday and Friday was put the distribution day count to 7, which is bearish.

Friday’s trading volume is hard to interpret; in additional to regular trading activity, the markets also digested:

• Expiration of equity options & futures and index options & futures (i.e. “quadruple witching”)
• Index rebalancing
• S&P 400, 500, and 600
• Nasdaq 100

Either way, that type of market action isn’t what you want to see right after a follow-through.

SPX Elliott Wave Analysis for the Week of December 19 2021

For Elliott Wave, there’s no change from last week, in terms of the signal or the overall count; two set-ups remain possible:

1. Minor Wave 2 ended at the December 3rd low of 4495
2. The A-wave of Minor Wave 2 ended at the December 3rd low of 4495

COMMENTARY
No major surprises; the U.S. Fed announced that the pace of bond purchases (i.e. taper) will increase and we should plan for rate hikes in 2022.  At the moment, they’re forecasting 3 hikes next year.

Repeating the message from last week, tapering means removing liquidity from financial markets, and less liquidity means higher volatility.  Higher volatility means larger price swings, which impacts your entry and exit signals.

Rising rates change the valuation of future cashflows, which changes financial estimates for all sorts of fundamental analysis.  For instance, SPACs and other technology IPOs use the value of future cashflows to justify their valuations and stock prices since they don’t have earnings yet.

This week, personal income and PCE index data is released, and markets are closed on Friday in observance of Christmas.

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.