The S&P500 ($SPX) fell 3.3% last week, cutting through a trendline connecting higher lows in mid-October. The index closed Friday's session just below the 50-day and 8.6% below the 200-day moving average.
2022-11-06-SPX Trendline Analysis - Daily
The ADX signal flipped to bearish on Wednesday, and price/volume shifted to mixed, as the market sliced through the 50-day moving average on higher trading volume.
2022-11-06- SPX Elliott Wave Analysis - Daily - Primary Y
Elliott Wave analysis shows the ongoing, counter-trend rally. Given the RSI/MACD set-up, another wave higher (5th wave or a C-wave) is still possible, with the 62% retracement near 4000 an appropriate target.
2022-11-06- SPX Elliott Wave Analysis - Weekly - Primary Y
It's possible, although less likely, that the counter-trend rally completed at 3900 as an Intermediate (4), and the SPX drops to a new low to complete Primary , similar to mid-June price action.
2022-11-06- SPX Elliott Wave Analysis - Weekly - Primary 3
In response to the Fed meetings last week, we got both binary outcomes within the span of an hour! See the daily chart from Axios (H/T Steve Blumenthal & On My Radar):
As soon as the hike was released, the markets surged higher on a dovish interpretation of the statement; the Fed was going to hike by smaller amounts going forward, which meant that the hiking was almost done, which meant that a rate cut (pivot) was "closer".
Then the press conference started. Powell said the Fed may not raise as much the next meeting, but that they may have to raise more than expected; i.e. the overall interest rate level when they're done hiking will be higher. That means no pivot.
Powell repeated his view that he'd like to hike too much, rather than hike too little. He went a step farther and said that IF rates get too high (i.e. over tighten), the Fed has the tools to fix any problems that arise. To me, that says we'll have to see something seize up in the credit market for the Fed to lower interest rates (rather than falling stock prices).
The next Fed meeting is December 13 & 14, when it's likely we WILL see a lower increase in rates. By then, the issue for stock prices will be lower earnings, not interest rates.
This week's volatility will be brought to you by the latest CPI report and consumer credit data.
Best To Your Week!
P.S. If you find this research helpful, please tell a friend.
If you don't, tell an enemy.
Sources: Bloomberg, CNBC, Federal Reserve Bank of St. Louis, Hedgeye, U.S. Bureau of Economic Analysis, U.S. Bureau of Economic Analysis
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.
IMPORTANT DISCLOSURE INFORMATION
This material is for general communication and is provided for informational and/or educational purposes only. None of the content should be viewed as a suggestion that you take or refrain from taking any action nor as a recommendation for any specific investment product, strategy, or other such purpose. Certain information contained herein has been obtained from third-party sources believed to be reliable, but we cannot guarantee its accuracy or completeness.
To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisors of his/her choosing. Invest Safely, LLC is not a law firm, certified public accounting firm, or registered investment advisor and no portion of its content should be construed as legal, accounting, or investment advice.
The material is not to be construed as an offer or a recommendation to buy or sell a security nor is it to be construed as investment advice. Additionally, the material accessible through this website does not constitute a representation that the investments described herein are suitable or appropriate for any person.
Any referenced performance is “as calculated” using the referenced funds and has not been independently verified. This presentation does not discuss, directly or indirectly, the amount of the profits or losses, realized or unrealized, by any reader or contributor, from any specific funds or securities.
The author and/or any reader may have experienced materially different performance based upon various factors during the corresponding time periods. To the extent that any portion of the content reflects hypothetical results that were achieved by means of the retroactive application of a back-tested model, such results have inherent limitations, including:
Model results do not reflect the results of actual trading using assets, but were achieved by means of the retroactive application of the referenced models, certain aspects of which may have been designed with the benefit of hindsight
Back-tested performance may not reflect the impact that any material market or economic factors might have had on the use of a trading model if the model had been used during the period to actually manage assets
Actual investment results during the corresponding time periods may have been materially different from those portrayed in the model
Past performance may not be indicative of future results. Therefore, no one should assume that future performance will be profitable, or equal to any corresponding historical index.
The S&P 500 Composite Total Return Index (the "S&P") is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market. Standard & Poor's chooses the member companies for the S&P based on market size, liquidity, and industry group representation. Included are the common stocks of industrial, financial, utility, and transportation companies. The S&P is not an index into which an investor can directly invest. The historical S&P performance results (and those of all other indices) are provided exclusively for comparison purposes only, so as to provide general comparative information to assist an individual in determining whether the performance of a specific portfolio or model meets, or continues to meet investment objective(s). The model and indices performance results do not reflect the impact of taxes.
Investing involves risk (even the “safe” kind)! Past performance does not guarantee or indicate future results. Different types of investments involve varying degrees of underlying risk. Therefore, do not assume that future performance of any specific investment or investment strategy be suitable for your portfolio or individual situation, will be profitable, equal any historical performance level(s), or prove successful (including the investments and/or investment strategies describe on this site).