The S&P500 ($SPX) kicked off 2023 with a win, getting back to the 50-day moving average with a gain of 1.8% during its first week of trading. Looking back to 2022, the index ended the year down a smidge over 18%.
2023-01-08-SPX Trendline Analysis - Daily
The ADX reading is back to bearish, after rebounding slightly.
The ADX reading flipped to bullish and price/volume starts the year mixed, thanks to Friday's strong price action. The move qualified as a "follow-through" on the rally attempt that started December 29th. As a reminder, a "follow-through" is defined as:
Why "mixed" and not an uptrend? Because the index remains below the 50-day moving average. A move above that level on heavy volume will change the signal, and could come as soon as Monday.
2023-01-08- SPX Elliott Wave Analysis - Daily - Primary Y
Elliott Wave analysis received an update, but remains bearish. The set-up looks similar to the late August / early September in terms of the indicators (i.e. counter-trend rally / Minor 2, price near the 34-day moving average, MACD approaching a cross-over).
2023-01-08- SPX Elliott Wave Analysis - Daily - Primary YThe longer-term view of Elliott Wave continues to match-up well with the wave count posted last May.
Happy New Year and a warm welcome to 2023! We're back in the saddle after some much needed time off. Hopefully you used the weekly outlook to protect your capital in 2022, or at least limit the damage. 2023 promises to be a harder trading environment than last year, thanks to the coming earnings recession, elevated inflation, and reaction to Fed policy, so buckle up.
Recapping last week's rally, Friday's jump coincided with Non-Farm Payroll (NFP) and "ISM Services" reports. First, December Non-Farm Payrolls were higher than expected, with unemployment at a 50-year low, but down a bit from November. Sort of not too hot, not too cold.
Perhaps more importantly, December U.S. ISM Services showed a contraction in December! Per Hedgeye, one specific data point stood out: "New orders (a gauge for future demand) fell close to -20% to 45.2"! Why would a contraction be bullish? Because market participants interpreted that data as a sign the Fed will reverse interest rate hikes soon. Yes, they're still hoping for a pivot. And you already know hope is not an investing strategy.
If the Fed is to be believed, a pause is coming at some point this year. But one data point won't shift the policy, even if it's in the required direction.
Speaking of the Fed, we've got some event risk on tap this week, starting with Fed Chair Powell speaking at the Sveriges Riksbank International Symposium on Central Bank Independence, in Stockholm, Sweden on Tuesday. Then on Thursday, December CPI data is released prior to market open.
And if that's not enough, earnings season kicks off this week with heavyweights in the banking sectior: JPMorgan Chase (JPM), Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C). Factset analysts expect S&P500 companies to report a combined earnings decline of -2.8% for Q4 2022 (i.e. the start of that earnings recession).
Best To Your Year!
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 Labor Statistics
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).