Stock Market Outlook
For The Week Of October 9th = Downtrend

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

The S&P500 ($SPX) rose 1.5% last week, but that seems pretty tame considering its ~6% gain mid-week.  The index closed ~10% below the 50-day and ~15% below the 200-day moving average.

2022-10-09-SPX Trendline Analysis - Daily

The ADX signal stays bearish, as the gap between the negative and positive direction indicators widened after Friday's sell off.

Price & volume still shows a downtrend as well.  Monday is the fifth day of the latest rally attempt (started on October 3); watch for either a break below the September 30th low or a 1.5% increase on above average trading volume.

2022-10-09- SPX Elliott Wave Analysis - Daily - Primary Y

Elliott Wave shows a completed wave last week, but more movement is needed to confirm the wave count.  Either way, the September 30th low and last week's high are support/resistance levels to watch.

COMMENTARY

Another week, another narrative ends in tears, as market commentators and participants continue their search for anything to justify their views that the Fed's fight with inflation is over, the bottom is in and it's time to buy stocks again.

Last weekend, Australia's central bank decided to slow its pace of rate hikes (the "new" definition of a pivot).  Then, United Nations Conference on Trade and Development called on central banks to stop raising interest rates to avoid a global recession. Combined, these two events raised hopes the the Fed would "read the room" and change course.

On Tuesday, the JOLTS summary (Job Openings and Labor Turnover) showed a 10% decline in the number of job openings. Somehow that was interpreted as the economy "definitely" showing signs that interest rate hikes were working, soft landing achieved, etc. All that jawboning appeared with work, with the SPX up more than 5% by Wednesday's high.

Friday's release of nonfarm payroll data showed an increase in September, just above consensus estimates. The unemployment rate dropped to 3.5%, thanks in part to a lower labor force participation rate. Those data points aren't high, but they're not low either, and don't provide enough "negativity" to justify the narrative of a shift in Fed policy. Reality set in, and stock prices retreated.

Would a pause or pivot in interest rate hikes be a "risk-on" event?  Definitely.  But for how long?  Remember that justifying a pivot or pause requires us to be the in midst of a really bad economic situation; one that would make interest rate policy the least of investors' concerns.

This week, financial media will do it all over again while we await the release of CPI data on Thursday.  Keep in mind that the Fed doesn't meet until November 1, and a lot can happen between now and then.  So no matter how many data points are connected, no matter how many past examples are cited, it's all conjecture and guesswork until November 2.

Better to look for signs of a recovery in other areas:

• Yield curve (is it flattening?)
• U.S. dollar (is it weakening and/or becoming less negatively correlated to equities?)
• Earnings announcements (are they beating targets and/or raising guidance?)

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, Hedgeye, U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics

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