The Safe Investing Blog

Stock Market Outlook entering the Week of August 23rd = Uptrend

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

ANALYSIS
No change in the stock market outlook; uptrend with green across the board (ADX, price/volume, or Elliott Wave).

2020-08-23-SPX Trendline Analysis-Daily

The S&P500 ($SPX) sits 10% above the 200-day; that’s historically extended, so odds favor sideways or downward price action from there. The first level of support is the May-June trendline.

2020-08-23-SPX Elliott Wave Analysis-Daily-Intermediate A

Since we’re basically at all time highs, there’s a lot of discussion regarding EW counts, with lots of different price targets thrown around (both bull and bear cases). The S&P reached an all time high of 3399.96 on Friday and exceeded the 3393 a few times during the week. All those excursions came on weaker RSI readings.

The price action isn’t convincing enough to say the current count is wrong, but enough to cast doubt on it for sure.  I’ve kept an alternate count, because I really think the June 8th high was the end of a 5th wave that completed Intermediate A.

2020-08-23-SPX Elliott Wave Analysis-Daily-Intermediate C

I honestly don’t know which EW count is correct…and most likely no one will until after we see the depth of the next correction.  But that’s also why I choose to use more than one signal.

In any case, what we do know, is that:

• The rally from the March low retraced 100% of the prior decline
• Since the last corrective wave in June, we can see 5 waves, even if everyone doesn’t agree on the price where each of the waves start and end
• When 5th waves end, it’s correction time

The good news is that the differences in the counts (Intermediate A vs C / Bull verses Bear market) don’t change the fact that we should see a correction soon. They just impact “how big” people think the next correction will be…what price targets they use for trading.

2020-08-23-SPX Trendline Analysis-Weekly

I haven’t shown the long-term view in while. You can see the negative divergence more clearly, in terms of RSI. And look at price action in 2019; the S&P sold off after recovering from a big decline and reaching the prior all-time high (set in the middle of 2018).

Still, that doesn’t mean the markets can’t go higher. I saw someone calling for the megaphone pattern to continue, which could see the S&P500 rise above 3500…before heading back below 2200!

COMMENTARY

Hitting all time highs on the S&P means that we’ve just experienced the fastest bear-market plunge, followed by the second-fastest bear-market recovery ever (in U.S. markets at least).  And in no way is the underlying economy anywhere close to as strong as is was pre-plunge.  May you live in interesting times indeed!

Many have asked why are stock prices so high, when the underlying economy is not so great.  Basically, it’s the only game in town if you’re looking for a return on your investment.  With interest rates essentially zero and the U.S. Federal Reserve buying bonds, there’s a lot of money looking for a home.  I’m talking about market makers like hedge funds, asset managers, institutional investors, corporations, etc…even countries (check out Swiss investments in US stocks).  They’ve got to put their money somewhere.  You and I are just along for the ride.

The current rally has been really kind to tech stocks and other COVID plays, so your allocations may be a little out of whack. It’s probably a good time to take some profits.

Best to your week!

Stock Market Outlook entering the Week of August 16th = Uptrend

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

ANALYSIS
Little change in price last week means the stock market outlook shows an uptrend in place this week.

2020-08-16-SPX Trendline Analysis-Daily

The S&P500 ($SPX) is oh so close to a new all time high, and is up ~3.5% for the year, believe it or not.  It’s also looking a bit extended from the 200-day moving average.  Not quite to the levels seen in Q1 of this year, but something to watch.  No change in the ADX or price/volume signals, though we did pick up a distribution day. The support trendline also remains in place.

2020-08-16-SPX Elliott Wave Analysis-Daily-Intermediate A

Elliott Wave is still a problem for this uptrend, and there was another negative divergence in the RSI last week as prices came within a few points of the all time high.

An Intermediate B wave typically retraces 50-79% of the Intermediate A wave. If the count and pattern holds, the target for the next downtrend somewhere between 2800 and 2400.

COMMENTARY
On the upside, U.S. retail sales were strong in July, and actually bested levels prior to the pandemic. But that improvement came with increased inflation, and negotiations for another aid package have stalled.

Given that we’re in a historically “weak” period for market prices, it wouldn’t be surprising to see a pull back over the next 2-3 weeks.

Best to your week!

Stock Market Outlook entering the Week of August 9th = Uptrend

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

ANALYSIS
Basically a carbon copy of last week’s stock market outlook; no change in the signals and price action remained bullish.

2020-08-09-SPX Trendline Analysis-Daily

The S&P500 ($SPX) support trendline, remains in place, and isn’t overly extended from the 50 & 200 day moving averages.

The Elliott Wave count, if correct, shows a correction should start any day now.  The negative divergence in the RSI remains in place verses the highs in June and July (not by much though)…common for the end of a 5th wave.

That said, in order for the current count to be correct, the Minor 5 wave needs to end before it exceeds the February high (3393). Heading into the week, the S&P is just 42 points shy of that level. Not exactly a risk-on scenario.

2020-08-09-SPX Elliott Wave Analysis-Daily-IntermediateA

Of course, the count could be wrong, which is why I don’t use just one signal. Downside risk is roughly 6%; that’s how far the S&P500 would need to fall before breaking the 50-day moving average and generating a sell signal in the other indicators.

COMMENTARY
U.S. employment figures were released last week, beating estimates for hiring in July.

Despite the positive headlines, underlying data isn’t great. There are still a lot of people that aren’t getting paid what they did a few months ago.  The longer that situation persists, the larger the impact on consumption, and therefore the economy.

70+% of our economy is based on consumption, so while the stimulus checks help people stay afloat, they won’t necessary improve the economic recovery. Does the stimulus check get saved, get invested, or go towards paying down debt? If yes, then it’s impact is limited.

That’s not to say the stock market can’t continue to climb. All that liquidity from the various central banks has to go somewhere! Talking heads justify current prices by saying that “the market” is now looking past near term earnings (since they will be bad) and focusing on expected earnings in 2021 or 2022 (even though firms aren’t providing guidance out that far). Since the situation will eventually get better (people get back to work, find similar paying jobs, etc.), there’s no need to reprice.

It’s like a wink and a nod that we’ll all pretend everything is okay…which is great as along as everyone keeps pretending! It’s the prisoner’s dilemma at work.

Best to your week!

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

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

ANALYSIS
No change in the ADX, price/volume, or Elliott Wave signals, so the stock market outlook maintains an uptrend.

2020-08-02-SPX Trendline Analysis-Daily

The S&P500 ($SPX) remains above the support trendline, as well as the moving averages. The ADX remains bullish, while prices remain above the 50-day moving average with a low number of distribution days.

2020-08-02-SPX Elliott Wave Analysis-Daily-IntermediateA

For Elliott Wave, the Minor 5 wave is nearing completion.  The [v] subwave should complete the pattern, as well as the Intermediate [A] wave. Afterwards, the Intermediate [B] correction should take hold.

COMMENTARY
A lot of data last week!  On the “Wall Street” side, earnings reports came in fast and furious.  Really, it was the Amazon, Apple, and Facebook show, as their performance was much better than expected…and their CEOs were dragged in front of Congress to discuss anti-trust.

Quarterly US GDP growth saw its sharpest downturn on record, but even that wasn’t “as bad” as everyone feared.  But Democrats and Republicans are still struggling to come up with agreeable terms for the next round of stimulus, which won’t help “Main Street” at all.

More earnings on tap this week, along with updated unemployment numbers.

Best to your week!

Stock Market Outlook entering the Week of July 26th = Uptrend

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

ANALYSIS
The stock market outlook uptrend continues; no change in the signals last week.

2020-07-26-SPX Trendline Analysis-Daily

The S&P500 ($SPX) remains above key support levels, the ADX remains bullish, and institutional selling remains low.

2020-07-26-SPX Elliott Wave Analysis-Daily-Intermediate A

No change to the Elliott Wave count; the Minor 4 wave completed at the end of June, and the Minor 5 in progress since then. With the market selling off Thursday and Friday, it looks like S&P completed the (3) sub-wave last week. Based on this count, I wouldn’t expect prices to fall much further, since first waves and fourth waves aren’t allowed to overlap; (1) completed at 3184.

All that said, now is not the time to be complacent. It’s earnings season, and your favorite stock may just be one conference call away from a major selloff; just ask Intel shareholders.

COMMENTARY
Not the best week for equities. The E.U. agreed on a stimulus package, but that was about the only positive. The U.S. is still negotiating a second packages, but current benefits set to expire at the end of the week. Initial jobless claims increased for the first time since March.

As if Q2 earnings and a global pandemic weren’t enough to keep markets occupied, geopolitical tensions came back into the headlines last week. The U.S. State Department ordered China to close its Houston consulate, alleging the site was part of a Chinese espionage effort using diplomatic facilities across the US. In response, China ordered the U.S. to close its consulate in Chengdu.

Earnings season kicks into high gear this week, with almost 40% of the S&P500 reporting.

Best to your week!

Stock Market Outlook entering the Week of July 19th = Uptrend

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

ANALYSIS
The stock market outlook uptrend continues, with the ADX, Price/Volume, and Elliott Wave all in the green.

2020-07-19-SPX Trendline Analysis-Daily

The S&P500 ($SPX), closed above the resistance trendline pretty consistently. But it was unable to get past the June 8th high.  The ADX remains bullish. Distribution day count is still low and recent ones have below average trading volume.

2020-07-19-SPX Elliott Wave Analysis-Daily-Intermediate A

No change to the Elliott Wave count; 5th wave still in progress. We do have a pretty good set-up for a new high on lower relative strength (RSI divergence) that was missing back in early June, which can be seen in both the daily and weekly views.

2020-07-19-SPX Trendline Analysis-Weekly

COMMENTARY
Bank earnings were better than expected, thanks in large part to “trading” based revenues.  That said, here are a couple of quotes from the conference calls (hat tip to Steve Blumenthal):

“May and June will prove to be the easy bumps in terms of this recovery. And now we’re really hitting the moment of truth, I think, in the months ahead.”

– Jennifer Piepszak, CFO, JPMorgan

“Our view of the length and severity of the economic downturn has deteriorated considerably from the assumptions used last quarter.”

– Charlie Scharf, CEO, Wells Fargo

“I don’t think anybody should leave any bank earnings call this quarter simply feeling like the worst is absolutely behind us and it’s a rosy path ahead.”

— Mike Corbat, CEO, Citigroup

Earnings season ramps up this week, with ~100 companies reporting results.

Best to your week!

Stock Market Outlook entering the Week of July 12th = Uptrend

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

ANALYSIS
The stock market outlook uptrend remains in place this week, though there wasn’t a lot of activity either way. That’s not to say there wasn’t ANY activity in the markets; Tesla stole the show by jumping ~20%.

Action in the ($SPX) was flat last week. The ADX remains bullish. Distribution days are spread out, so the elevated count (6) isn’t cause for concern.

2020-07-12-SPX Trendline Analysis-Daily

The index closed at the resistance trendline on Friday. Bulls are expecting a gap up on Monday that negates the trendline, bears are expecting a drop back to support levels.

2020-07-12-SPX Elliott Wave Analysis-Daily-Intermediate A

No change to the Elliott Wave count this week (still in a 5th wave, looking to get past the June 8th high), though there was a small divergence in the RSI (slightly higher close/ slightly lower RSI reading on Friday vs Monday).

COMMENTARY
Big name U.S. banks begin Q2 earnings reports this week, so we could be in for some volatile moves. Since they are typically used for income investing strategies, be on the lookout for dividend cuts and or changes in the payout ratio.

Best to your week!