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  5. Stock Market Outlook - 2023-03-19

Stock Market Outlook
For The Week Of March 19th = Downtrend


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


No change in the stock market outlook; a downtrend remains in place.

The S&P500 ($SPX) rose 1.4% last week.  The index found support near the trendline of lower-highs from November-December, and currently sits just below the 200-day moving average after briefly reclaiming that level.

Technical analysis of daily SPX prices

2023-03-19-SPX Trendline Analysis - Daily

The ADX and price volume remain bearish.  The index experienced more institutional selling, with Friday's volume skewed by options expiration and index rebalancing.

Elliott Wave remains mixed; key levels are 3765 and 4196.

Technical analysis of daily prices

2023-03-19 - SPX Elliott Wave Analysis - Daily - Primary 1 (Bullish)


This week was a long month.  Based on all the hyperventilating, you'd expect the U.S. stock market to have crashed.  Not so.  Instead, the S&P 500 was up modestly for the week.  The NASDAQ was up 4.4%!  Liquidity issues and bank failures mean buy tech stocks.  Who knew?

After mentioning further surprises in the last post, the banking sector delivered with First Republic Bank ($FRC) stepping into the spotlight.  Credit Suisse ($CS) made a push late in the week, but that bank has struggled for a while now (credit issues as far back as October 2), so it's not really a surprise.  As of Sunday, UBS will won't will be acquiring them.

Lost in the hyperventilating were February consumer price index and producer price index data.

February CPI data was inline with estimates and declined from January.

  • CPI
    • +6.0% vs. +6.0% est. (y/y),
    • (0.4%) from January's +6.4% reading
  • Core CPI
    • +5.5% vs. +5.5% est.
    • (0.1%) from January's +5.6% reading

February PPI data was lower than estimates and declined from January.

  • PPI
    • +4.6% vs. +5.4% est (y/y)
    • (1.1%) from January's revised 5.7% reading
  • Core PPI
    • +4.4% vs +5.2% est (y/y)
    • (0.6%) from January's revised 5.0% reading

This week, all eyes are on U.S. interest rates, with the Fed's latest policy hitting the wires Wednesday.  Last week, the ECB raised rates 0.5%, in spite of any potential liquidity issues, with some pundits calling the move a trial balloon for the Fed.

So...what to do.

First, breathe.

Second, remember rule #1: No one cares more about your money than you.  Not Jim Cramer, not CNBC, not the people railing on Facebook, or the sensational "sky is falling" tweets rising to the top of Twitter's new algos.

Third, remember rule #2: Always protect against losses.  If you don't keep the money you have already, compounding is impossible.  One way to do that is only trade when the probability of success is in your favor.  And right now, that's not the case for most of us. More specifically to the weekend outlook, the SPX at a point where none of the signals are convincing in either direction.  The outlook shows a downtrend in place.  The SPX sits on the 200-day moving average and a trendline of higher lows.  For every bearish signal, you can find a bullish counterpoint.

Finally, review your personal finances.  Check your balance sheet and make sure your account sizes are within the FDIC / SIPC limits. If not, take action!  Check your investment portfolios and make sure your positions are sized appropriately (i.e. one investment can't destroy the value of your nest egg).  If not, take action!  For example, you could reduce the size of each position so the maximum loss in any single investment is less than 2% of the total portfolio.

Markets are complex systems.  Complex systems are difficult to model due to the interactions between their parts, the system as a whole, and the environment. These interactions create nonlinearity, emergent properties, feedback loops, etc...all of which reduce or remove your edge.

There are a lot of moving parts in the global financial system right now...everything, everywhere, all at once, if you will. No one knows what Powell will do this week, let alone how market prices respond, so we've got no edge.  Capital preservation is best choice until our edge returns.

Remember, if you think you know what's going on right now, you're not paying attention.

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

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