The S&P500 ($SPX) dropped ~2.5% last week, thanks to a big reversal on Thursday and Friday. As of the close, the index needs to climb another 7.5% and 11% to reach the 50 and 200 day moving averages, respectively.
2022-05-15-SPX Trendline Analysis - Daily
The ADX remains bearish, and so does price/volume. Friday's rally came on lower than average volume, which isn't bullish.
2022-05-15- SPX Elliott Wave Analysis - Daily - Primary 2
Elliott Wave still shows a bearish trend. Big rallies in a short amount of time, like the one last week, are typical of an ongoing bear market, not a bottom. Bottoming is a process and takes time. We've noted and positive RSI divergence, so I'm watching for a confirmation from the MACD over the next few weeks, similar to the price action seen in February.
Another week, another round of volatile price movements. And not just stocks! It takes a steady hand and a little luck to navigate this type of market environment. Traditional safe havens (i.e. bonds) have underperformed, while utilities and the energy sector seemingly the only game in town.
Many highly shorted companies saw their stock prices rally sharply on Thursday and Friday. Movement like that is typical when a hedge fund unwinds an account or closes out it's books completely.
Or, funds may have been forced to raise capital in response to the carnage in crypto. Without diving into specifics, one of the currencies blew up. One of the associated coins (LUNA) fell from the mid-$60's to less than $0.01 over a few days. That's wealth destruction of the highest order, especially for those who went all in and ignored the concept of position and/or portfolio sizing.
On the economic front, inflation numbers (U.S. CPI) came in higher than expected...again (+8.3% YoY vs. +8.1% expectation). During the week, Fed Chair Powell referenced Paul Volcker when discussing his plans the fight inflation. Paul Volcker was Fed Chair in the early 80s when the Fed raised rates to a peak of 20%.
What he didn't mention that Volcker wasn't on anyone's Christmas card list. Unemployment rose above 10% and the economy went through back to back recessions, not to mention a nasty bear market.
Eventually, market turbulence will subside and a bull market will return. Your task is to minimize risks until that time comes (i.e. $VIX<20 for more than a few days).
Best To Your Week!
P.S. I mentioned "zooming out" on Elliott Wave last week, and added a longer-term chart below. I've seen a few analysts showing the ABC zigzag pattern completing the Primary  wave already. While that's possible, it's a low probability right now, since there's no divergence in either the RSI or MACD to support it yet.
2022-05-15- SPX Elliott Wave Analysis - Weekly - Primary 2
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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