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  3. Stock Market Outlook - 2022-04-24

Stock Market Outlook
For The Week Of April 24th = Downtrend

INDICATORS

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

ANALYSIS

As you might have guessed, the stock market outlook shifted back to a downtrend on Thursday last week.

The S&P500 ($SPX) dropped 2.7%...that's just short of 5% in the past two weeks. The index started off well, rallying from support at the 50-day moving average to 200-day. From there, the index fell back to the 50-day on higher volume and then kept falling into the close on Friday.

Technical analysis of daily SPX prices

2022-04-24-SPX Trendline Analysis - Daily

The ADX is still below 20, so the trend is weak, but the directional indicators are bearish.

The price/volume signal shows a downtrend in place. Institutional investors sold after late-March rally, evidenced by many distributions days during the past 5 weeks. Thursday's session ticked the box mentioned last week, in terms of distribution days and price action needed to shift the signal.

Technical analysis of daily SPX prices

2022-04-24- SPX Elliott Wave Analysis - Daily - Primary 2

Elliott Wave confirmed the downtrend as well, although the Minor 2 was shorter than expected. Overall, Primary 2 is acting like zigzag corrective wave (5 waves down, 3 waves up, 5 waves down). We’ll have to see what price action is like this week, but the current Minor 3 kicked off with a lot of volatility, just like the past Minor 3 in mid-January.

COMMENTARY

The Fed continues to talk about fighting inflation, and Powell confirmed a 0.5% rate hike is on the table for May. Based on the last announcement, he's probably telling everyone that the Fed will hike rates 0.5%, without actually saying it.

There is a growing expectation that the Fed will hike rates until "something breaks", and the 2022 Fed Funds Futures is pricing in 10 rate hikes. I expect something to break before we get there, but stranger things have happened.

As you can see, this week is jam packed with the earnings releases of companies that are widely held by all sorts of investors.  There are several names from the Dividend Aristocrats and Dividend Kings lists, as well as 4 of the 5 largest components of the S&P reporting:

  • Apple = ~7% of the index's total value
  • Microsoft = ~6%
  • Alphabet = ~4% (Class A + Class C Shares)
  • Amazon = ~4%

If last week was any indication, we're in for a lot of volatility this week.  Weak earnings are one thing, but lowering guidance or mentioning headwinds and slow downs will cause investors to press the sell button;  HCA Healthcare ($HCA) and Verizon ($VZ) come to mind.

Looking for shelter from the inflation storm? Energy, utilities, and consumer staples have the most pricing power, and will probably be the "least bad". Technology and consumer discretionary get hurt the most.

Several readers emailed me last week, commenting that their signaling process had already shifted to a downtrend and/or bearish outlook. I think that's fantastic! One, because they made some moves that saved them from losing money. And two, because they created a process and executed it!

This stock market outlook is just an example of how to evaluate market conditions, as well as how to make improvements over time. It's better than nothing, but use it as a tool to get you started. Every investor has a different situation and different needs, so every investor needs their own process with their own signal(s) for the things they are trading.

Best To Your Week!


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If you're interested in learning more about the relationship between price and volume, or how to find and trade the best stocks for your growth strategy, check out this book on Amazon via the following affiliate link:

How to Make Money in Stocks: A Winning System in Good Times and Bad.

It's one of my favorites.


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Charts provided courtesy of stockcharts.com.

For historical Elliott Wave commentary and analysis, go to ELLIOTT WAVE lives on by Tony Caldaro. Current counts can be found at: Pretzel Logic, and 12345ABCDEWXYZ

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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