After some volatile sessions, the S&P500 ($SPX) ended the week with a gain of 0.9%. The index remains above the 50 and 200-day moving averages.
2023-04-30-SPX Trendline Analysis - Daily
ADX shows a bullish trend, although the direction indicators flipped during the week.
Price/volume remains mixed, despite last week's performance. Trading volume was above average last week (finally), showing that institutional traders were active participants. On the bullish side, the index remains above the 50-day moving average, and Thursday's action could be considered a follow-through day. On the bearish side, said rally attempt started back in mid-March, so the market's well outside the 4-10 day window.
When the technicals aren't clear, take a look below the surface at the behavior of innovative growth companies (i.e. “leading stocks”). The $FFTY serves as a proxy for market leadership, and it doesn't support a bullish narrative. That index remains rangebound, and still needs to break resistance at the 50-day moving average.
2023-04-30-FFTY Trendline Analysis - Daily
No change in Elliott Wave entering the week either, although the SPX is at an inflection point. Bearish technical indicators solidify the bearish count showing a completed Minor 2 on April 18. And the MACD crossed-over, confirming the RSI(5)’s bearish divergence during early April.
2023-04-30- SPX Elliott Wave Analysis - Daily - Primary Y (Bearish)
As of Friday’s close, the SPX appears to have completed a Minute [ii] wave in the bearish count. The typical retracement for a second wave is 61.8%-100% of the first wave. So for the current Minute [ii], the target was 4123-4169.48. The SPX closed Friday’s session at…*checks chart*…4169.48(!). While this level needs to hold, the count is further strengthened by a second negative divergence in the RSI(5), increases the probability of a completed 2nd wave.
Of course, the fact that the index sits at 100% retracement also makes the bearish count very "fragile", as there's little room to the upside! The bull count isn't invalid just yet, despite the increasingly bearish tone set by the technical indicators. Both counts need to survive a handful of market moving events this week.
March PCE data shows that inflation continues to decline from peak levels, but remains high. Headline numbers were higher than expected (+4.2% Y/Y), but was lower than the 5.1% increased in February. Core PCE was up 4.6% Y/Y; down slightly from February.
First quarter GDP showed the U.S. economy is growing, at a slow pace...kind of like inflation. Q1 GPD increased +1.6% Y/Y, versus +0.9% Y/Y in Q4 2022. Interestingly, government spending accounted for 0.81% of the increase. The annualized SAAR, which is the number widely reported by the media, showed an increased of +1.1%, well below the Q4 level of +2.6%.
So far, Q1 earnings have exceeded analyst estimates, although most of those estimates were lowered last quarter so it's not as impressive as it sounds. With just over half the S&P500 companies reporting, revenue growth is up about 5%, while earnings are contracting (-3%). The Energy and Industrial sectors are up 51% and 26% respectively, otherwise the earnings contraction would be much worse (Source: Hedgeye Risk Management).
Mega-cap tech stocks, which account for a large part of the S&P's performance, helped the index rally last week. But this week is all about Apple, which releases earnings on Thursday, May 4th. The company accounts for almost 7% of the S&P500's total market cap!
They'll be a lot of economic data released this week as well. ISM Manufacturing & Services indexes come out on Monday and Wednesday, respectively. JOLTS data is released on Tuesday. On Wednesday, the Fed's latest rate decision is announced. Non-farm payrolls come out on Friday.
But first, the market needs to absorb another bank failure. After market close on Friday, Reuters broke the news that the U.S. Federal Deposit Insurance Corporation (FDIC) was preparing to put First Republic Bank ($FRC) into receivership.
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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