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Stock Market Outlook
For The Week Of
January 7th = Uptrend

INDICATORS

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

ANALYSIS

Happy New Year!  The stock market outlook starts 2024 with an uptrend in place, as we look towards Q4 earnings season later this month.

After 9-straight weeks of gains, the S&P500 ($SPX) took a vacation to kick off the year, losing 1.5%.  The index now sits ~3.5% above the 50-day moving average, and ~7.5% above the 200-day moving average.

Technical analysis of daily SPX prices

2024-01-07-SPX Trendline Analysis - Daily

The uptrend from late October was broken at the end of the year; not surprising given the size and speed of the rally; ~8% gain per month is an impressive run, and also unsustainable, for an index of large cap equities.

The ADX directional indicators and price/volume are bullish, but weakened significantly over the holiday period.  The last post noted an extreme reading in the ADX and the corresponding potential for volatility and a downside potential.  The following week provided a massive reversal, along with several down days.

For price/volume, institutions were largely sellers after the start of the year, resulting in distributions days and closes in the lower half of the daily price range.  Leading stocks, as measured by the IBD 50 ($FFTY), also took it on the chin to start the year, dropping ~4%.

Technical analysis of daily prices

2024-01-07- SPX Elliott Wave Analysis - Daily - Primary C (Bearish)

For Elliott Wave, both the RSI(5) and MACD showed bearish divergences towards the end of 2023, raising the probability of a decline in prices (which we saw last week).  The RSI(5) shows an oversold condition now, but the MACD remains bearish.

COMMENTARY

Last week's job reports (JOLTs, ADP, NFP) were stronger than expected, which sent rate cut expectations lower, which sent interest rates higher, which sent most equities lower. Be on the lookout for market reaction to CPI/PPI data this week (Thursday / Friday).

Going forward, the Elliott Wave analysis requires some fine tuning, as a bearish signal was in place most of the year, despite some rather large rallies.  It's within EW rules to rally back to prior highs within a longer term "bear-market", but I'd like to see if there's a way to capture those moves.   Fortunately, the "majority rules" overcomes the short-comings of any single signal.

Best to Your Week and Your Year!

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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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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