The S&P500 ($SPX) rallied hard, then eased into the close, gaining ~1.5% for the week. The downward trendline remains in place, with the index closing near that level on Wednesday then retreating.
2022-02-06-SPX Trendline Analysis - Daily
The ADX remains bearish. The price/volume signal moved back to mixed last Monday. Jan 24th marked the start of a possible rally attempt, and Monday’s trading action marked a follow-through day, with a rise on higher trading volume.
But the index remains below the 50-day moving average, and the price charts of most leading companies are far from proper buy points. Most are still working on the left-side (corrective side) of new price patterns, like the “cup with handle”. When companies with excellent fundamentals start breaking out of proper price patterns, you’ll know the market is ready to rally.
2022-01-30-SPX Elliott Wave Analysis - Daily - Primary 2 - Minor 1
For Elliott Wave, the signal remains bearish. Wednesday’s close was higher than the Jan 10th low, so that invalidates the Minor 1 wave from last week. Considering last week’s discussion of time compression, it’s possible/probable that the entire Intermediate (1) completed on Feb 24th.
2022-02-06-SPX Elliott Wave Analysis - Daily - Primary 2
The SPX was range-bound between the 62% and 32% Fibonacci levels. last week. Since the index retraced more than 50% of the decline from the Jan 3rd high, so price action meets the minimum criteria for a corrective Intermediate Wave (2) move (remember that during downtrends, corrective moves are to the upside – i.e. a rally).
Looking ahead, it's entirely possible we plunge further from here, but heading back toward all time highs isn’t out of the question either. Wave (2) can retrace all of (1); back to the Jan 3rd high, and remain valid. That’s why other signals are important; they’re likely to turn bullish before Elliott Wave sorts itself out.
Last week's January jobs report blew away expectations, and likely sealed the deal in terms of the Fed raising interest rates in March. The next question is how much, followed by what's next. The interest rate futures curve implies that there's now a 33% chance the Fed raises rates 0.5% in March. And many investment banks are making headlines for their predictions of up to SIX rate hikes this year! Regardless, until the Fed actually raises rates, we're likely to see continued volatility in the market.
Speaking of volatility, there was a lot of that to go around last week; this time tech companies like Facebook/Meta, Amazon, Google, Snapchat. Weighted indexes like the SPX will avoid the carnage as long as mega-cap stocks like Apple, Google, and Amazon hold up. Quarterly earnings drove the the unusual movements, so keep in mind that year-over-year increases are increasingly harder to achieve thanks to great numbers in 2020. In the current market environment, companies that miss on headline numbers (revenue/profit) see their stock prices severely punished (i.e. Facebook $FB).
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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