Stock Market Outlook
For The Week Of February 2nd =
Uptrend

ADX Directional Indicators: Uptrend
Institutional Activity (Price & Volume): Mixed
On Balance Volume Indicator: Uptrend

ANALYSIS

The stock market outlook remains in an uptrend.

The S&P500 ( $SPX ) fell 1% last week.  The index is ~1% above the 50-day moving average and ~7% above the 200-day moving average.

SPX Technical Analysis - February 02 2024

The ADX flip flopped early last week, thanks to high volatility.  Institutional activity racked up another 2 days of high volume selling, taking the total to 7 and moving the signal to mixed.  2 days are set to leave the count early this week (potential positive), but the 50-day moving average is close at hand (potential negative).

Communications ( $XLC ) led the way for a second week, while it was a tough week for Energy ( $XLE ) and Technology  ( $XLK ) sectors.  Energy fell back to a Bearish bias, along with Technology.  Utilities downshifted to Neutral.  Energy remains oversold, and Communications remains overbought.

Following the improvements last week, a few more sectors moved back to bullish bias: Healthcare, Industrials, and Technology.  Materials tests a potential change at neutral. In the shorter-term, Communications, Consumer Staples, Financials, and Healthcare are overbought and Energy is oversold.

Low Beta equities were the best sector style last week, and upshifted to a neutral bias; Momentum stocks were the worst.  A few more bias changes to note:  High Beta, Mid Cap Growth, and Defensive downshifted to Neutral, while Small Cap Growth moved to bearish.

Bitcoin ( $IBIT ) was the worst performer last week, while Gold ( $GLD ) and the U.S. Dollar outperformed.  Bonds shifted to a neutral bias.

COMMENTARY

Last week was quite a year. FOMC kept rates unchanged, pausing the rate-cutting cycle they started in September.  They cited rationale including: solid economic activity, stabilized unemployment, and "somewhat elevated" inflation.

The advanced (1st) GDP estimate for 2024 Q4 came in lower than expected (2.3% vs 2.6% expected), which is down almost a full percent from 2023 Q4.  Not recession territory, but still slowing growth.

PCE was up 20 basis points year over year; core was flat and hasn't changed since October.

Most impactful to Monday's open are President Trump's tariffs on Mexico, Canada and China. Per the executive orders, effective February 4, 2025, the United States will impose a:

• 25% tariff generally on all imports from Mexico
• 25% tariff generally on all imports from Canada, except for “energy resources” which have a 10% tariff
• 10% tariff on all imports from China

All three countries announced retaliatory measures are in the works.

On Friday, Reuters posted an article about a possible delay for tariffs, which sent equities higher during the morning. However, the White House shot down that story midday, and the indexes sold-off hard from there.  Many investors are looking to Monday, hoping for a reverse "buy the rumor, sell the news" effect.

As always: we cannot predict, we can only prepare.  You've probably noticed a lot of whipsaws your the signals going back to early December, which means it's been a traders market (rather than a buy and hold or long-term allocator).  Last week was no different, and Monday will probably be more of the same.  Futures just opened and the indexes are down ~1.5%.

Protect your capital, keep your losses small, and deploy capital when probabilities are in your favor (oversold in bullish trends).

Best to Your Week, and Happy New 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

If you're interested in learning more about the relationship between price and volume, or how to find and trade the best stocks for your growth strategy, check out this book on Amazon via the following affiliate link:

How to Make Money in Stocks: A Winning System in Good Times and Bad.

It's one of my favorites.

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