The S&P500 ($SPX) is making a second attempt to break-through the resistance zone created by the May lows. Basically, the index is back to where it was 2 weeks ago, just with less trading volume. Institutional investors and hedge funds like to front-run technical price levels (e.g. trendlines and moving averages), so keep an eye on volatility this week.
2022-07-10-SPX Trendline Analysis - Daily
The ADX is still bearish and price/volume remains mixed. The latest rally moved off life-support, since the SPX got back above the follow-though price level. But isn't out of intensive care yet. Trading volume took a vacation last week, and the index still has those two distribution days.
2022-07-10- SPX Elliott Wave Analysis - Daily - Primary Y
The Elliott Wave signal is the first to shift to an uptrend, thanks to the "higher low" last week and an update to the count. This bear market has been hard to map, let alone trade. Think of this as another chance to redeploy capital and/or limit losses into a counter-trend move, not an all-out, risk-on rally. Support is the new "higher low" at 3739, while resistance remains at 3945.
A holiday shortened trading week was probably something everyone needed, and it showed with trading volume running well below average. The best performances came from heavily shorted stocks and/or those with high beta. And big moves on low volume in those sectors is typical of short-covering rallies. Going into the week, most hedges were shorting the major U.S. indexes (S&P500, NASDAQ and Russell 2000). The narrative was that traders were TOO bearish ahead of earnings season, so they took advantage of the holiday week to make changes.
The June jobs report was better than expected. The U.S. economy created 372,000 jobs, which was much higher than the consensus estimate for 270,000. Hourly earnings from May were in-line with estimates, and up slightly year over year. If the Fed were to meet tomorrow, this data justifies another 0.75% rate increase. But any and all data released prior to their next meeting could be enough to shift policy.
At this point, "peak" inflation is likely priced into the market. That's does NOT meant that the financial markets have priced a relatively high level of inflation over a sustained period of time. For example, commodity prices may be falling from their peaks, but it takes time for those declines to work through supply chains. Therefore, recession metrics and earnings/guidance will have the bigger impact on market direction for the rest of the year.
Best To Your Week!
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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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