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.
2022-01-30-SPX Trendline Analysis - Daily
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 , "crying Jordan" correction.
2022-01-30-SPX Elliott Wave Analysis - Daily - Primary 2
The current count is Minor Wave 5 of Intermediate (1) of Primary . 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).
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!
Charts provided courtesy of stockcharts.com.
Once a year, I review the market outlook signals as if they were a mechanical trading system, while pointing out issues and making adjustments. The goal is to give you to give you an example of how to analyze and continuously improve your own systems.
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