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  3. Stock Market Outlook - 2023-09-03

Stock Market Outlook
For The Week Of September 3rd = Downtrend

INDICATORS

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

ANALYSIS

The stock market outlook remains in a downtrend as we start September trading.  Despite last week's positive price performance, only one signal shifted to an uptrend; another shift is needed.

The S&P500 ($SPX) gained 2.5% last week.  As of Friday's close, the index was ~1% above the 50-day moving average, and ~8.5% above the 200 day moving average.

Technical analysis of daily SPX prices

2023-09-03-SPX Trendline Analysis - Daily

The ADX directional indicators turned bullish last week, after the S&P500 blasted through the 50-day moving average on Tuesday.  Price/volume only shifted to mixed, however, as trading volume didn't confirm the bullish move.  A move on above average volume is needed to confirm the rally and shift this indicator.

Technical analysis of daily prices

2023-09-03 - SPX Elliott Wave Analysis - Daily - Primary 1 (Bullish)

Elliott Wave shows at least a 3-wave rally since the Aug 18th bottom.  Short-term support for the current bullish count is 4483, with the MACD cross-over providing support to the rally.  Resistance for the bearish count is 4607, with the overbought RSI(5) providing support for a continued correction.

Technical analysis of daily prices

2023-09-03 - SPX Elliott Wave Analysis - Daily - Primary Y (Bearish)

COMMENTARY

A solid rally, even if trading volume was less than desired.  Last week was the final trading week of the summer season, so most trading desks were lightly staffed.  Institutional traders return, in force, on Tuesday, so expect trading volume to get back to normal starting next week.

Last week's economic data was a mixed bag; employment growth is slowing, but remains positive, much like inflation.

JOLTS data showed a decline in the number of job openings, with "only" 8.8M in July (down from 9.2M).  Take this survey with a grain of salt; it's directionally correct, but that's about it.  NFP data showed an increase of 187k, higher than the 170k forecast.

The second revision to Q2 GDP was released, trimming the prior estimate from 2.4% to 2.0%.

PCE for July showed a small acceleration in the Y/Y comparisons (M/M as well, but those are less important).

  • Headline PCE = +3.3% Y/Y  (June  = +3.0% Y/Y)
  • Core PCE = +4.2% Y/Y  (June = +4.1% Y/Y)

But higher inflation wasn't the narrative circulating Wall Street however.  Instead, talking heads focused on May, June, July PCE readings, specifically the annualized average, to make the case for no more interest rate hikes.  Annualizing the 3 months puts PCE at 2.1% (Core PCE at 2.9%), which is close enough for most pundits to declare game over for inflation.

The U.S. stock markets are closed Monday for the Labor Day holiday.

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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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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