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  3. Stock Market Outlook - 2023-12-17

Stock Market Outlook
For The Week Of
December 17th = Uptrend

INDICATORS

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

ANALYSIS

The stock market outlook continues to show an uptrend in place, as we wind down 2023 and look forward to 2024.

The S&P500 ($SPX) gained 2.5% last week; that's 7 positive weeks in a row. The index now sits ~6.5% above the 50-day moving average, and ~9% above the 200-day moving average.

Technical analysis of daily SPX prices

2023-12-17-SPX Trendline Analysis - Daily

The ADX directional indicators and price/volume are bullish (strong uptrend, backed by companies breaking out of good price patterns and limited institutional selling).

At 48 and change, the ADX reading is at it's highest level since the August 2020 peak.  The indicator also breached 40 in July of this year.  In both cases, the SPX experienced volatile reversals, so eyes up. For Elliott Wave, the SPX rallied past 4607, eliminating a few wave counts.  The index is now within 100 points (~2%) of the all time high, set back in January 2022.  Technical indicators remain overbought.  The RSI(5) divergence and MACD cross-over reversed, but the MACD histogram developed a negative divergence.

Technical analysis of daily prices

2023-12-17- SPX Elliott Wave Analysis - Daily - Primary C (Bearish)

COMMENTARY

Inflation data, or lack there of, helped slingshot U.S. equities higher last week.

  • CPI (November - Y/Y):
    • Headline: 3.1% vs. 3.2% (Oct)
    • Core: 4.0% vs, 4.0% (Oct)
  • PPI (November - Y/Y):
    • Headline: 0.9% vs. 1.3% (Oct)
    • Core: 2.0% vs 2.4% (Oct)

Even the FOMC seemed to be impressed, deciding to maintain current interest rate policy while signaling 2-4 rate cuts next year via the infamous "dot plot".  During the subsequent FOMC discussion, Powell struck a much more dovish tone than expected, noting the possibility of "easing" prior to actually seeing the 2% target manifest in lagging data. Just 2 weeks ago, Powell stated that it was premature to have such discussions.

Pundits and economists then went to work to justify the dovish view, dissecting the various data sets to show achievement of a 2% target, even if PCE isn't there yet.  November PCE is scheduled to be released this Friday, December 22nd.

Market participants interpreted the above messaging to mean "soft landing achieved" and/or "recession averted", and capital flows flooded into stocks.

This will be the final Stock Market Outlook of 2023, as the holiday season upon us.  Next Sunday is Christmas Eve (24th), and U.S. markets will be closed on Monday (25th) for the Christmas Holiday.  The following Sunday is New Year's Eve (31st), and U.S. markets will be closed the next day (Monday, January 1st) for the New Year's holiday.

Normally, I'd expect a light trading week from the 26th through the final trading day of the year on December 29th.  However, be on the lookout for tax-loss selling, given the massive run-up we've experienced since the end of October.

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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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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