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Stock Market Outlook
For The Week Of November 6th = Downtrend

INDICATORS

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

ANALYSIS

The stock market outlook flipped back to a downtrend on Wednesday, with 2 of the 3 signals back to bearish trends. Given the current level of the VIX (below 30, above 20), don't be surprised if the signals whipsaw back and forth.

The S&P500 ($SPX) fell 3.3% last week, cutting through a trendline connecting higher lows in mid-October. The index closed Friday's session just below the 50-day and 8.6% below the 200-day moving average.

Technical analysis of daily SPX prices

2022-11-06-SPX Trendline Analysis - Daily

The ADX signal flipped to bearish on Wednesday, and price/volume shifted to mixed, as the market sliced through the 50-day moving average on higher trading volume.

Technical analysis of daily prices

2022-11-06- SPX Elliott Wave Analysis - Daily - Primary Y

Elliott Wave analysis shows the ongoing, counter-trend rally.  Given the RSI/MACD set-up, another wave higher (5th wave or a C-wave) is still possible, with the 62% retracement near 4000 an appropriate target.

Technical analysis of daily prices

2022-11-06- SPX Elliott Wave Analysis - Weekly - Primary Y

It's possible, although less likely, that the counter-trend rally completed at 3900 as an Intermediate (4), and the SPX drops to a new low to complete Primary [3], similar to mid-June price action.

Technical analysis of daily prices

2022-11-06- SPX Elliott Wave Analysis - Weekly - Primary 3

COMMENTARY

In response to the Fed meetings last week, we got both binary outcomes within the span of an hour! See the daily chart from Axios (H/T Steve Blumenthal & On My Radar):

Market Response to FOMC

As soon as the hike was released, the markets surged higher on a dovish interpretation of the statement; the Fed was going to hike by smaller amounts going forward, which meant that the hiking was almost done, which meant that a rate cut (pivot) was "closer".

Then the press conference started. Powell said the Fed may not raise as much the next meeting, but that they may have to raise more than expected; i.e. the overall interest rate level when they're done hiking will be higher.  That means no pivot.

Powell repeated his view that he'd like to hike too much, rather than hike too little. He went a step farther and said that IF rates get too high (i.e. over tighten), the Fed has the tools to fix any problems that arise. To me, that says we'll have to see something seize up in the credit market for the Fed to lower interest rates (rather than falling stock prices).

The next Fed meeting is December 13 & 14, when it's likely we WILL see a lower increase in rates. By then, the issue for stock prices will be lower earnings, not interest rates.

This week's volatility will be brought to you by the latest CPI report and consumer credit data.

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 Economic Analysis



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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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