2022-06-19-SPX Trendline Analysis - Daily
The index ended the week ~6% lower, and sits ~12% below the 50-day and ~20% below the 200-day. For a bit of context, at the height of the COVID crash, the SPX was about 36% below the 200-day; the Great Recession reached 66%, while the Dot.com crash hit 37%.
The ADX and price/volume signals are bearish, and Elliott Wave is back to a downtrend.
Between the Fed meeting and the massive option expiration, the stage was set for a potential rally back to resistance near 4400. Instead, the pre-market gap-downs on Monday and Thursday increased the probability that the "3-wave pattern" completed in early June (verses the prior count that put the index in the middle of that pattern).
2022-06-19- SPX Elliott Wave Analysis - Daily - Primary Y
The good news? Regardless of which count prevails (both are still possible at this point), the market is due for a counter-trend rally. The 3600 level is prior resistance turned support (August 2020), and a positive divergence developed in the RSI as well, so maybe this week will give traders some relief.
Before you break out the champagne, keep in mind that the bear market is just getting started...the SPX hasn't even reached the 38% retracement level yet.
2022-06-19- SPX Elliott Wave Analysis - Weekly - Cycle II
As expected, a lot of volatility last week. Things kicked off with a bang, with another cryptocurrency-related blow-up. This time it was an exchange (Celsius) halting all withdrawals from its platform. Unfortunately, blow-ups like this will occur more frequently as liquidity is removed from the system (i.e. qualitative tightening).
Then "someone" leaked that the Fed was likely to hike interest rates by 0.75%, rather than the 0.5% they forecast in May. The rumor quickly spread, and basically became a sure thing in the eyes of most financial media. They even debated whether the Fed should raise by 1% or more! On Wednesday, the Fed did raise rates by 0.75%, citing recent inflation data shifting their view.
Back in reality, the near-term impact to inflation is minimal, and that wouldn't have changed if the Fed hiked rates 2%! Markets would've dropped bigly, but inflation? Not so much. For the rest of the year, supply and demand factors are pretty much locked in. Even if we've already seen "peak" inflation, the numbers will remain high for a while, so strap in.
The situation isn't any better across the pond, as the European Central Bank (ECB) did an about face and is now set to raise interest rates. The ECB confirmed a 0.25% hike in July (its first increase in more than a decade), and hinted at a larger increase in September if inflation remains high. And just like the U.S., the hikes are in spite of the fact that the Euro-zone is experiencing an economic slowdown.
A short trading week in the U.S., with the markets closed for Juneteenth National Independence Day, to celebrate the end of slavery in the United States.
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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