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  3. Stock Market Outlook - 2023-08-20

Stock Market Outlook
For The Week Of August 20th = Downtrend

INDICATORS

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

ANALYSIS

The stock market outlook underwent a trend change last week, shifting to a downtrend. Since the turning bullish on May 17th, the outlook captured 6% of the latest rally.

The S&P500 ($SPX) fell 2.1% last week.  As of Friday's close, the index was ~2% below the 50-day moving average, and ~6% above the 200 day moving average.

Technical analysis of daily SPX prices

2023-08-20-SPX Trendline Analysis - Daily

The ADX directional indicators crossed on Wednesday and flipped the signal to a bearish trend.

Price/volume also shifted to a downtrend on Wednesday, after failing to find support at the 50-day moving average on Tuesday and picking up a few distribution days along the way.

Technical analysis of daily SPX prices

2023-08-20-SPX Elliott Wave Analysis - Daily

Elliott Wave is mixed, with both counts working through their first down wave. The RSI(5) shows the SPX in oversold territory, although the next wave should be a brief, counter-trend rally.  Key support and resistance levels remain unchanged at 4169 and 4632.

COMMENTARY

A trend change in the stock market outlook shifts strategy from offense to defense, meaning it's time to prune your portfolio.  Take profits from investments that have performed well during the recent rally, such as the energy and industrial sectors.  Those proceeds can be used in the next rally, when a lagging sector such as Utilities or Staples is in favor.

With money market funds (e.g. $FDRXX, $SNVXX, etc.) yielding ~5%, there's no need to place large bets right now.  Better to collect dividends while waiting for prices to tell you when to redeploy.

This week's main event is the U.S. Federal Reserve's 2023 Economic Policy Symposium in Jackson Hole (August 24 to August 26). The undercard is the BRICS Summit, set to take place in South Africa from August 22nd to August 24th.

Word on the street is that Brazil, Russia, India, China, and South Africa may unveil a new, gold-backed, digital currency during the summit. A new currency would allow member nations to settle transactions with one another without using the U.S. dollar. At this point in time, the USD's status as the world's reserve currency wouldn't be threatened, but something to keep an eye on for future developments.

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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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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