Stock Market Outlook
For The Week Of May 17th = Downtrend

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

The stock market outlook flipped to a downtrend last week with a change in the ADX signal.  Elliott Wave was already in a downtrend, but price/volume is still showing an uptrend in place.

2020-05-17-SPX Trendline Analysis - Daily

The S&P500 ($SPX) ran into some distribution to start the week, and then attempted to recover. The ADX directional indicators flipped, but the overall trend is VERY weak at the moment. The downward trendline managed to survive another week, again just barely, with the SPX crossing the line during the week but unable to close above it.

2020-05-17-SPX Elliott Wave Analysis - Daily

For Elliott wave, the S&P500 is rangebound between the 50% and 61.8% level retracement levels, but may have started the minor C-subwave of the intermediate B-wave. It's hard to tell, given the price action on Thursday an Friday. I expect the intermediate B-wave that to take us down to 2500-2600, but this market is doing anything but what is expected, so stay nimble!

Also, my labeling scheme was confusing some readers. I tried to mirror the structure used for OEW, but realized that can be confusing if you haven't studied OEW. Since Tony's blog isn't being updated, I figured it's time to just use traditional Elliott Wave labeling (e.g. Tony used "Major" waves, Elliott Wave doesn't, etc.).

2020-05-17-SPX Trendline Analysis - Weekly

Let's see...what happened last week:

• April data for retail sales and industrial production showed the steepest declines on record in the U.S. <-- No surprise, given the lockdowns
• The U.S. experienced a bought of deflation in April, as measured by the Consumer Price Index (CPI) <-- No surprise, given oil prices
• Tensions between the U.S. & China escalated with the U.S.'s move to block semiconductor shipments to Huawei <-- A bit of a surprise, given the state of the economy

I joined the Strategic Investment Conference last week, hosted by Mauldin Economics this year. I've wanted to attend for a long time, and the fact that it is virtual this year provided a great opportunity. Unfortunately, I didn't get to attend all of the presentations, so I'll have to review the transcripts this week. But the ones I did attend were excellent.

So even as the stock market is telling you that it is all figured out, I can assure you, what we face at this very moment is a highly uncertain economic future, and unfortunately, most of the longer-term risks are to the downside, not the upside. We are in a depression, not a recession. It's a depression. I didn't say the Great Depression; it's a depression."

“And I think the dynamics of a depression are different than they are in a recession, because depressions invoke a secular change in behavior. Classic business cycle recessions are forgotten about within a year after they end. At a minimum, depressions entail a prolonged period of weak economic growth, widespread excess capacity, deflationary pressure and a wave of bankruptcies.

- David Rosenberg

You can read a summary of Rosenberg's presentation at Advisor Perspectives. Ben Hunt's discussion of political narratives and their use of models was thought provoking, and reflects my concerns with "single sourced" news. The presentation concerned the narratives used for the COVID-19 crisis. It's been interesting to watch narratives change over the past few months, and how people flip-flop based on their needs. You can read a review of Hunt's presentation at CMG Wealth.

Politics aside, reading between the lines is important for investors, because our decisions are based on all kinds of different models. One tip/trick that I've used over the years: skip over adverbs (always, never, fairly, unfairly) and adjectives (huge, tiny). These words are relative; what's fair for you may not be fair for me. By removing them when you read a sentence, you boil the sentence down to the subject and verb; the heart of the message. Then you can make your own judgement. Another tip/trick: don't do this when you reading for fun or fiction; it makes for some very boring reading!

Best to your week!

IMPORTANT DISCLOSURE INFORMATION
This material is for general communication and is provided for informational and/or educational purposes only. None of the content should be viewed as a suggestion that you take or refrain from taking any action nor as a recommendation for any specific investment product, strategy, or other such purpose. Certain information contained herein has been obtained from third-party sources believed to be reliable, but we cannot guarantee its accuracy or completeness.
To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisors of his/her choosing. Invest Safely, LLC is not a law firm, certified public accounting firm, or registered investment advisor and no portion of its content should be construed as legal, accounting, or investment advice.
The material is not to be construed as an offer or a recommendation to buy or sell a security nor is it to be construed as investment advice. Additionally, the material accessible through this website does not constitute a representation that the investments described herein are suitable or appropriate for any person.
Hypothetical Presentations:
Any referenced performance is “as calculated” using the referenced funds and has not been independently verified. This presentation does not discuss, directly or indirectly, the amount of the profits or losses, realized or unrealized, by any reader or contributor, from any specific funds or securities.
The author and/or any reader may have experienced materially different performance based upon various factors during the corresponding time periods. To the extent that any portion of the content reflects hypothetical results that were achieved by means of the retroactive application of a back-tested model, such results have inherent limitations, including:
Model results do not reflect the results of actual trading using assets, but were achieved by means of the retroactive application of the referenced models, certain aspects of which may have been designed with the benefit of hindsight
Back-tested performance may not reflect the impact that any material market or economic factors might have had on the use of a trading model if the model had been used during the period to actually manage assets
Actual investment results during the corresponding time periods may have been materially different from those portrayed in the model
Past performance may not be indicative of future results. Therefore, no one should assume that future performance will be profitable, or equal to any corresponding historical index.
The S&P 500 Composite Total Return Index (the "S&P") is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market. Standard & Poor's chooses the member companies for the S&P based on market size, liquidity, and industry group representation. Included are the common stocks of industrial, financial, utility, and transportation companies. The S&P is not an index into which an investor can directly invest. The historical S&P performance results (and those of all other indices) are provided exclusively for comparison purposes only, so as to provide general comparative information to assist an individual in determining whether the performance of a specific portfolio or model meets, or continues to meet investment objective(s). The model and indices performance results do not reflect the impact of taxes.

Investing involves risk (even the “safe” kind)! Past performance does not guarantee or indicate future results. Different types of investments involve varying degrees of underlying risk. Therefore, do not assume that future performance of any specific investment or investment strategy be suitable for your portfolio or individual situation, will be profitable, equal any historical performance level(s), or prove successful (including the investments and/or investment strategies describe on this site).