The S&P500 ($SPX) fell 2.7%, with most of the damage done on Tuesday. With the index unable to maintain 4080, the 50-day moving average provided support on Wednesday and Thursday, with help from the 200 day moving average on Friday.
2023-02-26-SPX Trendline Analysis - Daily
The ADX flipped to a bearish reading on Tuesday's down draft, while price/volume shifted to mixed. Tuesday's trading volume was slightly below the prior session, so it isn't technically a distribution day. That said, the session wasn't bullish either. With price sitting below the 50-day the signal shifts to mixed, rather than a downtrend, thanks to the lack of distribution days.
Elliott Wave remains mixed; no change in key levels from last week (3765 and 4196/4325).
The ADX and price/volume action remains bullish, with only a couple of distribution days in the past 5 weeks.
2023-02-26- SPX Elliott Wave Analysis - Daily - Primary Y
The bearish diagonal count from last week was revised one level higher, with the market in the Minute [v] wave of Minor 1. It’s also possible that the Minute [iii] subdivided, which would put the market in Minutte [v] . This count shows a bounce to 4088 (the Minutte [i] low) is likely, before the market heads lower.
The RSI divergence correlates to completed 5th waves, so the Minor 1 count is most likely. For both bearish counts, 4196 is the max for Minor 2.
2023-02-26- SPX Elliott Wave Analysis - Daily - Primary 1
For the bullish count, the Minute [ii] wave reached typical Fibonacci levels. As mentioned above, an RSI divergence correlates to completed 5th waves, so a Minute  rally could start at any time.
In either case, remember that corrective waves are typically large and short, in terms of price movement and timeframe. So if you’re bearish, the next wave (Minor 2) will move like the Minor 2 last September. If you’re bullish, the Minute [iii] will move like the Minute [iii] from late October-early November.
The high level economic data released last week was bearish, showing lower GDP growth and higher inflation.
Revised Q4 GDP came out on Thursday, lowering data by 0.2% (+2.7% versus the initial estimate of +2.9%, on an annualized). On a year over year basis, Q4 GDP growth was revised lower as well (from 1.0% to 0.9%).
January PCE data was higher than expected (hawkish), with headline data increasing 5.4% year over year vs. expectations of 5%. Core figures came in at 4.7% y/y vs 4.3% expected.
Adding to last week's releases, there's a bunch of economic data coming out this week, including durable goods, pending home sales and price indexes, Consumer Confidence, ISM manufacturing and services data to name a few. More that enough to muddy the waters even more.
More earnings on the way:
P.S. Here's a potential contrarian and totally unofficial indicator for you: blog traffic. Typically, site traffic peaks when people are extremely bearish. Right now, traffic is barely a trickle, with some days registering zero activity, which is indicative of extreme bullishness.
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 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.
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