The S&P500 ($SPX) lost 1.3% for the week, and currently sits ~4% below the 50-day moving average and 3% below the 200-day. The index briefly broke the downward trendline after trading opened on Thursday, but quickly reversed lower.
2022-03-06-SPX Trendline Analysis - Daily
The ADX signal is still in a downtrend with a strong bearish trend. Price and volume continues to show a downtrend as well, with the SPX below the 50-day moving average, several distributions days, and limited signs of accumulation from institutions.
2022-03-06- SPX Elliott Wave Analysis - Daily - Primary 2
Elliott Wave continues to show a downtrend. The Minor 4 wave may have ended Thursday. That count would be invalidated if the SPX rallies above the Minor 1 low at 4451.5. Positive divergences developed in the RSI and MACD; the first “green shoots” we’ve seen this spring. As mentioned last week, the current bearish count are invalidated if the SPX rises above 4450.
Russia intensified its attack on Ukraine last week. Since we live in a connected society, instability in one region affects us all more acutely than in years past. Most of the world is concerned about the humanitarian impact the conflict, and looking for ways to help. I've read stories about using AirBnB to rent rooms and homes in Eastern Europe as a way to get quickly get money directly to people in need.
On the economic front, the immediate reaction to the war is the mooning of energy and commodity prices. Oil jumped 25%, copper rose ~10%, the Energy Select Sector SPDR Fund (XLE) was up 9.2%.
A different type of inflation than we've seen recently, but inflation nonetheless. Utilities (XLU) also benefit, but otherwise there's a LOT of red out there.
The U.S. jobs report showed 678,ooo jobs were added to the rolls in February; consensus estimates were looking for 390,000. That's a pretty big beat, and brought the unemployment rate down to 3.8%. U.S. Fed Chairman testified also last week, and did about as much as humanly possible to announce a 0.25% rate hike without announcing it.
At this point, the March 15-16 rate hike announcement is probably a non-event. But all signs point to the Fed increasing interest rates into an economic slowdown, which would create even more headwinds for markets to overcome.
Investing during the early 2020s has required a different mindset than investing in the 2010s. It's not clear when sanctions will be lifted; they could get worse before they get better. We're still dealing with supply chain issues from the pandemic that started 2 years ago, so it's quite possible that we're still dealing with the ripple effects of the war long after the shooting stops.
The only thing that is certain is that our path forward is uncertain. Uncertainty breeds volatility, and volatility is not something we had a lot of in the past decade. You'll need to revisit your position sizing rules, in terms of how much you're willing to lose before exiting a trade. You may need to lower your position size to feel comfortably weathering larger swings.
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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