2022-06-05-SPX Trendline Analysis - Daily
The ADX remains in downtrend. The index couldn't generate enough upward price movement to shift the directional indicators, though both fell throughout the week.
Not much happened on the price/volume front, with only 1 session of above average trading volume in the past 2 weeks. The lack of a high-volume follow-through day last week lowers the probability of success for the latest rally attempt.
2022-06-05- SPX Elliott Wave Analysis - Daily - Primary Y
Elliott Wave shows 5-waves up and a negative divergence in the RSI, supporting the completion of an Intermediate (A). Intermediate (B) would head back towards the May low, with the MACD putting in a positive divergence (e.g. early March). Then it's back toward the mid-4000s for Intermediate (C) and the final leg of this year's second bear market bounce.
Adding to recent commentary on spending levels and consumer strength, several analysts trotted out wage growth as another sign that the consumer is just fine. Why? Everything else being equal, rising wages correlates to rising spending, which should maintain economy growth. The problem is that "everything else" is definitely not equal right now.
Inflation is running higher than wage growth, which means your costs are increasing faster than your income. You have more money coming in, but more money is going out even though you're not buying more stuff. And THAT is the critical factor most analysts aren't mentioning. The economy grows when consumption of goods and services increases...not necessarily when spending on goods and services increases.
Semantics, they say. Wrong. If you've bought gas this year, you know what I'm talking about. You're buying the same amount of gas, but it costs twice as much as it did last year. So your spending increased, but not your consumption. If anything, you're looking to reduce consumption as much as possible. And that's NOT a recipe for economic growth.
Businesses experience similar issues, so be on the lookout for companies taking down their guidance. Earnings season just ended and companies are already making negative revisions for the next one (e.g. Microsoft)!
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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