The Safe Investing Blog

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

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

ANALYSIS
The stock market outlook uptrend remains in place this week, as the S&P500 grinds higher.

The S&P500 ($SPX) continues notching all time highs day after day, but on relatively small price movements. It’s hugging the upper bound of a channel; if that technical pattern continues to hold as it has over the past few months, the probability of a downward move (or at least limited upside) is high.

SPX Price Chart for the Week of August 15 2021

The index starts another week ~3% above the 50-day moving average and >10% above the 200-day moving average.

The ADX uptrend signal continues, with price action beginning to strengthen, similar to late June and early April. For price/volume, 2 days dropped off the count. With another 4 scheduled to drop out after this week, this signal likely returns to an uptrend in next week’s update. And the uptrend signal from Elliott Wave remains in place.

SPX Price Chart for the Week of August 15 2021

COMMENTARY
In the U.S., CPI and PPI numbers came out last week, with both measures showing an increase in prices. The consumer price index came in a bit below expectations, bolstering the narrative that inflation is transitory. The product price index came in a bit above expectations, bolstering the narrative that inflation isn’t transitory.

More than likely, we’ve got two types of inflation at play. The first is waning (i.e. consumer price increases), as reopening is well underway and product shortages from the first pandemic shutdowns have largely been addressed.  The second (producer price increases) is just getting started, reflecting the higher cost of doing business post-pandemic.

And lets not forget the U.S. Senate passed the trillion dollar infrastructure bill last week. It’s sorely needed, and shows that bipartisan support is possible, even if it’s not probable most of the time.

Best to Your Week!

Stock Market Outlook entering the Week of August 8th = Uptrend

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

ANALYSIS
The stock market outlook uptrend remains in place this week, with the index basically in the same position as last week.

Technically speaking, the S&P500 ($SPX) hasn’t advanced too much from July 26th or so; the index starts this week ~3% above the 50-day moving average, and >10% above the 200-day moving average.

SPX Price Chart for the Week of August 08 2021

The ADX remains bullish with weak overall price movement.  The S&P also picked up another distribution day. The count remains elevated (9), so the signal remains mixed.

One the plus side, the cluster of 6 from early July isn’t too concerning at this point, since recent selling has been sporadic. Another cluster now would be a bigger problem.

SPX Price Chart for the Week of August 08 2021

The uptrend signal from Elliott Wave remains in place.

COMMENTARY
Q2 earnings continue to come in on the strong side, but forward looking expectations (or lack thereof) seem to be scaring investors and causing sell-offs.  Partly to blame are improving economic conditions; U.S. unemployment fell in July, and in response treasury yields fell.

Expect a lot of hyperventilating about the Fed, interest rates, inflation, and employment in the coming weeks, leading up to the Fed meeting in Jackson Hole next month. None of it will be really useful for your decision making.  Instead, take a step back and see the forest for the trees, and watch GDP and consumer spending.

We’ve had good economic growth, relatively low inflation, and falling unemployment with more jobs than employees some areas.  The U.S. consumer continues to spend, thanks in part to government “funding”.

Those conditions won’t last forever.  Economic growth will slow down, as we normalize pandemic-related shocks and learn to live with COVID.  We know that prices are increasing due to supply chain issues, and regardless of whether it’s transitory, the Fed is going to allow inflation to increase.  Government stimulus will run out, and it’s not clear if the U.S. consumer will continue to spend at the same level…especially if interest rates rise.

Put those things together and you’ve set the stage for stagflation: slowing economic growth (GDP) with rising inflation and high unemployment.  We don’t have high unemployment, but employment is a proxy for the consumer demand (willingness to spend) and issues can occur even if it’s relatively low (e.g. 1973).

During periods of stagflation, picking the right asset class/sector is critical. In terms of asset classes, commodities tend to be the biggest winners, while debt/credit based instruments struggle.

Stock and bond investors can still profit from growth strategies, but the sector becomes very important (e.g. is it rate sensitive?).  For example, industrials, utilities, and big tech tend to outperform, while small caps and dividend plays tend to struggle.

For investors using an income investing strategy (specifically dividend investing), it’s even more important to invest in companies that have weathered these storms before. To that end, here are to data sets for you to use:

• Dividend Growth Investor reviewed a subset of the Dividend Champions
  • Companies that raised annual dividends each year for the past 25 years
  • https://www.dividendgrowthinvestor.com/2021/08/44-dividend-champions-for-further.html
• Sure Dividend updated the list of Dividend King’s last week
  • Companies that raised annual dividends each year for the past 50 years
  • https://www.suredividend.com/dividend-kings/

Best to Your Week!

Stock Market Outlook entering the Week of August 1st = Uptrend

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

ANALYSIS
The stock market outlook uptrend slide into August with sideways price action, which aligns with some of the weakness we discussed in last weeks post.

Fairly flat week for the S&P500 ($SPX) with the index hitting resistance at the upper channel line twice. It currently sits just off all time highs, ~3% above the 50-day moving average, and more than 10% above the 200-day moving average.

SPX Price Chart for the Week of August 01 2021

The ADX remains bullish, but the overall trend is weaken again.

The S&P also picked up 2 distribution days, coincidentally after testing the upper channel. At first glance, it appears to have added 3 distribution days, but 1 didn’t meet the price movement criteria. Wednesday’s close (vs. Tuesday’s close) dropped less than 0.2%. Either way, the count remains elevated, so the signal stays at “mixed” with price above the 50-day.

SPX Price Chart for the Week of August 01 2021

The uptrend signal from Elliott Wave rolls into another week…If wave i peaked on Thursday, wave ii could drop as low as 4225 before running back to all time highs. We haven’t checked the longer-term view in a while. The chart on the left aligns with the chart above, showing the 5th wave extension we’ve discussed a few times in the past. The chart on the right is an alternative view, proposed by a reader, asking what the count looks like if the Primary 1 wave ended with August’s sell-off. In both cases, it appears a correction is closer than it is farther away.

SPX Price Chart for the Week of August 01 2021

COMMENTARY
Earnings season started off pretty well, though some well known technology companies sold off surprisingly hard after reporting. But it’s next quarter’s earnings when we’ll begin to see post-COVID performance become the baseline for y-o-y comparisons.

A nothing-burger from the Fed last week; appears that they will continue to think about when to start thinking about telling us their thinking about normalizing financial policy.

Best to Your Week!

Stock Market Outlook entering the Week of July 25th = Uptrend

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

ANALYSIS
The stock market outlook uptrend remains in place to start the last week of July, but have we rebounded too quickly from last week’s weakness?

The S&P500 ($SPX) sold-off, then recovered last week, appearing to end the selling shortly after it began. In total, the “sell-off” dropped prices just a bit over 3.5% in 3 days.  I hesitate to call it a “correction”. It’s more like normal volatility creeping back into the market action, since we recovered all of the loss and then some over the following 4 days.

SPX Price Chart for the Week of July 25 2021

Technically, the long-term price channel ended thanks to Monday’s sell-off.  A new, short-term channel took its place.

The ADX made a quick, round-trip from bullish to bearish to bullish, highlighting the market volatility we just witnessed.  The SPX found support at the 50-day, but there’s a cluster of distribution days over the past few weeks (currently 6) which does indicate institutional selling at work and shifts the signal to mixed.

SPX Price Chart for the Week of July 25 2021

Based on last week’s price movement, Elliott Wave seems to be showing that the 5th wave is still alive…just not the way I thought. The S&P dropped below 4300 in dramatic fashion, and then rebounded just as quickly. Basically that means the count wasn’t correct, because wave 4 low points can’t overlap first wave high points. After relabeling the 5th minute wave, the current count still shows an “old” uptrend in progress.

COMMENTARY
Earnings season is upon us, but COVID’s Delta variant, inflation, and Fed support are driving the narrative.

Speaking of the Fed and their “support” of the economy, Natixis recently surveyed investors on a large number of topics. One interesting data point was their long-term expectations for returns. Globally, investors expect their returns to exceed inflation by 14.5%! U.S. investors expect to beat inflation by 17.5%!

I couldn’t find the definition of “long-term”, but that’s a pretty impressive average no matter what time frame you use.  You can dig into the report here (https://www.im.natixis.com/us/research/2021-natixis-global-survey-of-individual-investors).

And while it’s less of an immediate concern here in the U.S., China’s renewed focus on regulating publicly listed companies (e.g. BABA, DIDI, for-profit education firms) could eventually reach multi-national corporations. Something to watch.

Best to Your Week!

Stock Market Outlook entering the Week of July 18th = Uptrend

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

ANALYSIS
The stock market outlook continues in an uptrend this week,but it’s not without some headwinds (and tailwinds for that matter) .

The S&P500 ($SPX) had an off week…if you can call something like a 2% decline an off week.  And the ADX and price/volume signals remain bullish.

SPX Price Chart for the Week of July 18 2021

So we’re all good, right? Not so fast.  Over the past two weeks, the S&P collected a cluster of distribution days (4 of the past 9 sessions).  One of those days (last Wednesday) was something typical of market tops.

Even though the index closed higher than the prior day, it was actually a rare type of distribution day, “stalling”. Stalling days indicate selling into strength, verses buying it. Stalling occurs when:

1. The closing price is in the lower half of the days trading range
2. The closing price is higher than the prior day’s close
3. Trading volume is higher than the prior day

Combined with the fact that many stocks with really good fundamentals are experiencing technical / chart breakdowns, we have reasons to be cautious.

SPX Price Chart for the Week of July 18 2021

Elliott Wave is at an inflection point.  We may have just seen the end of the 5th wave or the end of the first part of the 5th wave.  If the 5th wave is still alive, then the S&P should remain above the wave iv low (just under 4300), assuming the Minute wave count is correct. As mentioned last week, the S&P has had waves extend several times previously, and there’s a lot of liquidity available to keep things moving.

COMMENTARY
The Fed repeated its stance that the current inflation readings are transitory, and while the recent recovery is progressing well, the central bank is still not to the point of withdrawing support.  China seems to support that notion, announcing its own version of QE last week.

Best to Your Week!

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

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

ANALYSIS
The stock market outlook continues in an uptrend this week, even with a slight spike in volatility.

The S&P500 ($SPX) sits at all time highs, with both the ADX and price/volume signals signaling a bullish environment.

SPX Price Chart for the Week of July 11 2021

On the downside, the ADX is still below 20 (weak trend), and we did pick up another pair of distribution days (bringing the total to 4).

SPX Price Chart for the Week of July 11 2021

Elliott Wave also remains in an uptrend, and looks like a corrective 4th wave took place last week (abc); a pretty consistent 4th wave pattern in this rally. If the 4th wave continues, we’ll head lower early next week, with the wave (i) high from mid-June the max decline. If complete, that puts the S&P into the last wave of the Primary 1.

The S&P has had waves extend before, and this count could be wrong, so there’s no guarantee the current uptrend ends anytime soon, 5th wave or not. But the Primary 2 wave will a bear market, whenever it starts, and could retrace the entire pandemic advance! Highly unlikely given all the “support” markets have these days, but still a possibility.

Since the market is up almost 20% for the year, there’s nothing wrong with taking profits and right-sizing your position and portfolio sizes.

COMMENTARY
All eyes were on the 10-year treasury last week, with the yield dropping back to February levels. That’s the opposite direction of the core inflation numbers, indicating that the bond market isn’t overly concerned about the recent spike in inflation…yet.

Best to Your Week!

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

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

ANALYSIS
The stock market outlook remains in an uptrend to kick-off the first full week in July.

The S&P500 ($SPX) continued to rally last week, adding further distance from it’s recent test of support.

SPX Price Chart for the Week of July 04 2021

Both the ADX and price/volume signals remain bullish. The ADX trend strengthened substantially, while the number of distribution days decreased again.

Price now sits ~3% and 13% above the 50 and 200 day moving averages, respectively.

SPX Price Chart for the Week of July 04 2021

Elliott Wave also remains in an uptrend, currently sitting in the the 3rd wave of the overall Minute 5, Minor 5, Intermediate 5, Primary 1, Cycle 3 count.

SPX Price Chart for the Week of July 04 2021

COMMENTARY
Employment dominated the news cycle last week, with the report hitting the so-called “Goldilocks” zone.  Basically, that means it had enough contradictory information to keep anyone from making changes.  The U.S. added more jobs than expected (Yea!), while the overall employment number rose (Boo!).

A short trading week in the U.S., with markets closed on Monday in honor of Independence Day.

Typically, this week starts that the summer trading season, with more volatility (i.e. “choppiness”) due to lower trading volumes.

Best to Your Week!