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  3. Stock Market Outlook - 2023-01-29

Stock Market Outlook
For The Week Of January 29th = Uptrend

INDICATORS

    ADX Directional Indicators: Uptrend
    Price & Volume Action: Uptrend
    Elliott Wave Analysis: Downtrend

ANALYSIS

No change in the stock market outlook; an uptrend signal remains in place as we close out January.

The S&P500 ($SPX) rose 2.5%, and broke above the long-term trendline that's acted as resistance since January 2022 (~16% decline).  The index is up 6% for the month/year, with 2 trading days left in January.  The NASDAQ was up 4.3% for the week, and sites 11% higher this month.

Technical analysis of daily SPX prices

2023-01-29-SPX Trendline Analysis - Daily

The index found support at both the 50 and 200 day moving averages last week. The ADX and price volume signals continue to show bullish trends, and we're seeing a low level of institutional selling (only 3 distribution days over the past 5 weeks).

Technical analysis of daily prices

2023-01-29- SPX Elliott Wave Analysis - Daily - Primary Y

The Elliott Wave signal remains bearish; though rising above 4100 invalidates the current Minor 2 wave count.  The SPX wasn't quite ready to head back toward the October low, putting in a head-fake 2 weeks ago and heading higher.  A second wave can retrace 100% of a Wave 1 advance, so no relabeling of the waves just yet.  Instead, two alternative counts (one bearish, one bullish) are presented at the end of the post for consideration.

COMMENTARY

So...GAME OVER bears? Sure feels that way...but feelings have no place in your investing process. So let's look at the data.

2022 Q4 GDP showed an annualized increase of 2.9% (BEA''s "advanced" estimate). On a year-over-year basis, GDP rose +1.0% vs. 2021 Q4, which is the smallest Y/Y increase this year.

December data for Consumption Expenditures (PCE) "dropped" to +5.0% Y/Y (vs. +5.5% in November). Core PCE came in at +4.4% Y/Y, down from +4.7% in November. For some perspective, 1989 was the last time Core PCE was at these levels. Care to guess how high the interest rates were? The Fed Funds Rate averaged 9.2% in 1989 (HT Hedgeye).

So U.S. economic data releases were middle of the road; nothing REALLY good or bad. Market participants took this as a sign that the Fed will be dovish at their meeting this week, in terms of their interest rate policy, and the broader indexes rallied.

That said, a ridiculous amount of option volume didn't hurt either; a quick look at U.S. Equity Options Volumes (NYSE), Friday's session saw the third highest trading volume since late 2019...regardless of type (weekly, monthly, quarterly).  I suspect that the ranking applies even further back, but the data isn't immediately available.  0DTE index options played an oversized role (again).  The takeaway is that leverage, via options, supports the recent rally, rather than underlying fundamental or economic changes.

Another big earnings week coming up.  So far, ~25% of the S&P500 has reported Q4 earnings; Sales growth is up ~5%, earnings growth is down ~3%.

The most anticipated earnings releases scheduled for the week are Amazon #AMZN, Apple #AAPL, SoFi #SOFI, AMD #AMD, Meta Platforms #META, Alphabet #GOOGL, Exxon Mobil #XOM, UPS #UPS, GM #GM, and Pfizer #PFE.

More importantly, at least from a market perspective, is the FOMC meeting this week (Tuesday) and subsequent interest rate announcement and news conference (Wednesday).

    Earnings don't move the overall market; it's the Federal Reserve Board... focus on the central banks, and focus on the movement of liquidity... most people in the market are looking for earnings and conventional measures. It's liquidity that moves markets.
    --Stanley Druckenmiller

In my opinion, the bear market isn't over; it's hibernating.  But as Ed Seykota said, “The trend is your friend...until the end when it bends."  So far, the data from January says the trend is up.

Best To Your Week!

Technical analysis of daily prices

Extended Intermediate (X) Wave (Bearish Alternative)

Technical analysis of daily prices

Primary [1] In Progress (Bullish Alternative)

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



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For historical Elliott Wave commentary and analysis, go to ELLIOTT WAVE lives on by Tony Caldaro. Current counts can be found at: Pretzel Logic, and 12345ABCDEWXYZ

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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