Weekend Stock Market Outlook – October 10 2021

Stock Market Outlook entering the Week of October 10th = Downtrend

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

ANALYSIS
The stock market outlook remains in a downtrend, as we await confirmation of a new rally.  The S&P500 ($SPX) tried to break a bearish trendline last week, but was unable to do so.

The ADX shows that downtrend strength peaked last week.  That’s good news for bullish investors, even though the signal remains in a downtrend.

Technical analysis of daily SPX prices

SPX Price & Volume Chart for the Week of October 10 2021

From a price and volume perspective, the signal remains mixed.  The S&P picked up another distribution day last week, and price remains below the 50-day moving average.

The total count of distribution days stands at 6, which is a bit elevated, but not too severe.  Of more concern is the cluster of 4 showing high levels of institutional selling the last week of September.  Since we’re testing the bearish trendline again, another burst of high volume selling would indicate the correction isn’t over.

Technical analysis of daily SPX prices

SPX Technical Analysis Chart for the Week of October 10 2021

For Elliott Wave, the ABC corrective pattern appears to be complete, and along with it Intermediate (4).   The technical indicators support this hypothesis; a positive divergence** in the RSI  and a cross-over of the MACD histogram (both circled in green).

I’m watching for a break above the Wave B high or a test of the Wave C low before a signal change.  If the correction is over, the S&P won’t drop below that low, and the S&P500 has moved into Intermediate (5), which could last ~5 months if it mirrors Intermediate (1).

**A positive divergence is a higher low on the RSI, with a corresponding lower low in price, which suggests that traders weren’t as eager to sell at the lower price level.

COMMENTARY
Commodities, particularly energy, are in the news lately, as the price of oil, natural gas, and coal rocket higher. But if you take a peak below the surface, these trends have been in a place for a while…they just haven’t been dramatic enough to reach headline status!

Technical analysis of weekly natural gas prices

Price chart for Natural Gas | Source: https://tradingeconomics.com/commodity/natural-gas

In the case of natural gas, the price began trending higher back in June of 2020, and really began accelerating in June of this year.

Likewise, coal began it’s uptrend early in 2020, but really began moving in September of that year. The move over the past two months looks like a blow-off top. The move in coal could be over, and you’re just hearing about it now.

Technical analysis of weekly Coal prices

Price chart for Coal | Source: https://tradingeconomics.com/commodity/coal

Obviously, neither of these trends are sustainable. But both of them highlight the need to do your own research, rather than wait for headline news.  There’s a reason traders say “Buy the rumor, sell the news”.

On the political front, the U.S. Congress agreed to a temporary deal that raises the debt ceiling and avoiding default. The next round of posturing will pickup again in a month or so. It’s hard to know what the next Fed meeting will bring; will they or won’t they begin to taper their quantitative easing. Inflation is running hot, while labor shortages and supply chain issues continue to stress the economy.

And lets not overlook the recent sabre rattling in the sky over Taiwan. A small misstep could have global implications and render most of our current narrative moot.

10 weeks until Christmas! Given the current environment, now might be a great time to start shopping!

Best to Your Week!


Invest Safely, LLC is an independent investment research and online financial media company.  Use of Invest Safely, LLC and any other products available through invest-safely.com are subject to our Terms of Service and Privacy Policy. Not a recommendation to buy or sell any security.
Posted in Historical Data, Market Trends | Tagged , , , , | Leave a comment

Weekend Reading – Money and More – October 09 2021

Money

“To guesstimate what the return would be to an investor who decides to play roulette”

The specifics of this chat message…are really not important for the spark and potential bonfire…What’s important is…THE major decision-maker for Robinhood’s broker-dealer, someone who is privy to every piece of material non-public information in the Robinhood casino, someone who is a FINRA-licensed registered rep – apparently day-trades meme stocks in his personal account, front-running Robinhood clients.

And More

“The best technologies do not automate complex problems, as many assume; they equip people to solve them faster and more effectively.”

Burnout isn’t just fatigue. It’s far more insidious and complicated.

Posted in Current Events, Investing, Money Management, Personal Finance | Tagged , , | Leave a comment

Weekend Stock Market Outlook – October 3 2021

Stock Market Outlook entering the Week of October 3rd = Downtrend

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

ANALYSIS
The stock market outlook kicks off the week in a downtrend, as 2 signals finally turned bearish at the same time during last week’s trading sessions.

Technical analysis of daily SPX prices

SPX Price Chart for the Week of October 03 2021

The S&P500 ($SPX) opened last week at the 50-day moving average, but it’s actually the 34-day moving average that provided resistance.

The ADX shows a strengthening bearish trend, keeping that signal in a downtrend. Price and volume signal moves from an uptrend back to mixed, as price was unable to hold the 50-day moving average after last Monday. Distribution days are still relatively low.

Technical analysis of daily SPX prices

SPX Price Chart for the Week of October 03 2021

For Elliott Wave, the market took the second option from last week’s post:

Wave [a] of Wave 4 completed, we’re in Wave [b], and Wave [c] will retest the 4300 low to complete the correction near 4246.

The correction appears to be Minor waves (rather than Minute), so I made a few changes to the wave count.

COMMENTARY
Concerns over interest rates and inflation are scapegoats for the recent sell-off. Rising rates tend to put a dent in large cap tech stocks, so we may see indexes like the NASDAQ lag small caps. It’s no surprise that the S&P500 struggled lately as well, given that 20% of that index is Apple, Amazon, Google, Microsoft and Facebook.

Timing-wise, the last time we had a ~5% correction was? Last September! It’s possible that we have a similar October in the works too, which would entail a rally back near the all time highs, then a sell-off back to the September low. None of that would be a surprise, given October’s historical volatility.

Best to Your Week!

Posted in Historical Data, Market Trends | Tagged , , , , | Leave a comment

Weekend Stock Market Outlook – September 26 2021

Stock Market Outlook entering the Week of September 26th = Uptrend

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

ANALYSIS
Despite the correction, the stock market outlook remains in an uptrend because no 2 signals have switched.

The S&P500 ($SPX) gapped down last Monday,  breaking through the 50-day moving average and the price channel pattern.  But by week’s end, most of that damage was undone, with the index closing back above the 50-day.

Technical analysis of daily SPX prices

SPX Price Chart for the Week of September 26 2021

The ADX signal remains bearish, as does the signal.

The price and volume signal switches to an uptrend to start the week.  The index retook the 50-day moving average, and distribution days are low at the moment.

Technical analysis of daily SPX prices

SPX Price Chart for the Week of September 26 2021

Going off of Monday’s Elliott Wave update, it’s possible that:

  • The correction is over: Wave 4 completed, and we’re into Wave 5 (shown in grey)

– Or –

  • The correction will retest the 4300 low: Wave [a] of Wave 4 completed, we’re in Wave [b], and Wave [c] will complete the correction (probably near the 62% retracement or 4,246)

COMMENTARY
All told, the S&P500 corrected ~5% from the early September high point.  Unless you’re 100% invested in the index, I’d bet your holdings moved a bit more than that…doubly so if you’re holding small cap stocks or anything in the emerging markets.  Outside of the S&P500, many equities took the summer off and have been correcting for the past couple of months.

Let’s not forget that we still have October’s volatility to “enjoy”, and there are still wild cards out there, such as raising the U.S. debt ceiling to avoid default, funding for the U.S. Government, and any real estate related issues coming out of China.

Failure to raise the debt ceiling would have the largest impact on your holdings, but is also the least likely to occur.  That doesn’t mean we can’t or won’t see volatility as politicians posture for the media.

Regardless of the narrative, last week served as another reminder of how quickly prices can move in today’s financial markets. Given the record levels of margin currently being used for trading and investing, this kind of volatility is to be expected.

Amount of credit investors are using

Source: Advisor Perspectives

Margin debt will also amplify the speed and size of the next bear market, whenever it comes;  bad news for those that are caught unaware, but great news for those with cash to invest (see the kind of bargains there were back int March 2020!).

Make your plunge protection plans now, while the markets are relatively calm, and you can profit when there’s “blood in the streets” so to speak.

Best to Your Week!

Posted in Historical Data, Market Trends | Tagged , , , , | Leave a comment

Updated Stock Market Outlook – September 20 2021

Yesterday’s stock market outlook touched on a three potential Elliott Wave counts (Cases 1-3), and I mentioned:

For Elliott Wave, the S&P500 is clearly correcting, but what’s not so clear is whether it’s within an uptrend or the start of a downtrend. So the signal remains mixed.

At the moment, I think we’re still in the 5th Intermediate Wave…probably the 3 minor wave…more to come.

Thanks to today’s market action, I received quite a few emails asking:

  1. For the “normal” Case 3 Elliott Wave chart
  2. If Case 3 was still my preferred count after today’s sell-off

The answer in both cases is yes.  Even with today’s sell off, the Intermediate 5, Major 3 count is still valid.

Technical analysis of daily SPX prices

SPX Price Chart for September 20, 2021

If we lay in the Fibonacci levels from the start of the current intermediate wave, we see:

  • Today’s intraday low of 4305 was 2 points away from the 50% retracement level.
  • Today’s close was ~2 points away from the 38% retracement level

The question now is whether tomorrow will be turnaround Tuesday or something else.  If the S&P500 continues to sell-off and head’s below 4257 (the high point for the current Major 1 wave), then the 5th wave scenarios (i.e. Case 1) are much more likely.

COMMENTARY

Today’s U.S. equity market action was ugly, thought the last 30 minutes took out some of the sting.

The narrative behind today’s sell-off was that traders fear spillover effects from the potential collapse of Chinese property developers, particularly a company called Evergrande.  Apparently, Evergrande has ~$300 billion in debt and two of those bills come due this Thursday ($83.5 million  and $36 million).

While they still have 30 days to pay, there’s growing concern they’ll default regardless.  This fear is causing pain for other Chinese property developers: Sinic and Guangzhou R&F saw massive sell-offs themselves. 

Posted in Historical Data, Market Trends | Tagged , , , , | Comments Off on Updated Stock Market Outlook – September 20 2021

Weekend Stock Market Outlook – September 19 2021

Stock Market Outlook entering the Week of September 19th = Uptrend

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

ANALYSIS
The stock market outlook remains in an uptrend, but that doesn’t mean we can’t see corrective price action.

The S&P500 ($SPX) continues to trade within the upward price channel, but you can plainly see the increase in volatility and recent weakness.

Technical analysis of daily SPX prices

SPX Price Chart for the Week of September 19 2021

The ADX signal maintains the downtrend signal based on the directional indicators, and a weak trend based on the ADX itself.

From a price and volume perspective, the signal is mixed to start the week. Friday’s distribution day has an asterisk, due to the extra trading volumes from option expiration. But even with that distribution day, the total over the past 5 weeks remains low (5).

However, price closed below the 50-day moving average for the first time since June, resulting in the mixed signal. That said, the S&P sits ~4 points below the 50, which is roughly .075%. Let’s see what happens this week.

Technical analysis of daily SPX prices

SPX Price Chart for the Week of September 19 2021

For Elliott Wave, the S&P500 is clearly correcting, but what’s not so clear is whether it’s within an uptrend or the start of a downtrend. So the signal remains mixed.

The RSI(5) pattern didn’t hold up, and neither did the 34-day moving average, indicating a change in market behavior. On the positive side, the RSI shows a positive divergence, so the S&P may be close to bottoming. At the moment, I think we’re still in the 5th Intermediate Wave…probably the 3 minor wave…more to come.

COMMENTARY
The latest CPI report showed inflation moderating in August, as expected. This is the “transitory” aspect everyone is talking about. But this is on the heels of higher PPI numbers (meaning higher prices are still being felt in the supply chain). How much of that increase makes its way to the consumer remains to be seen.

Best to Your Week!

ADDITIONAL ANALYSIS
If you’re interested, here are few more charts for the Elliott Wave Analysis.

Case 1

Technical analysis of weekly SPX prices

SPX Price Chart for the Week of September 19 2021 – Primary 2

If the original count for the “minute” waves was correct, then it’s likely that the Primary 1 just ended, and we’re in first impulse wave of the Primary 2 downtrend. There’s nothing “wrong” with the overall structure of the waves, with the Primary 1 lasting about the same amount of time as the last Cycle 1, Primary 1 (~1.5 years). And the intermediate, major, and minute waves all show long, 5th-wave extensions.

Case 2

Technical analysis of weekly SPX prices

SPX Price Chart for the Week of September 19 2021 – Primary 4

I’ve seen some counts putting the S&P at the end of Primary 3, which would also put us in the first impulse wave of a downtrend; this time a Primary 4. The overall wave structure looks ok in terms of overlaps, but the timing and symmetry of the intermediate waves looks off. And the Primary 1 is too short when compared to the Cycle 1, Primary 1 back in 2009-2011.

Case 3

Technical analysis of weekly SPX prices

SPX Price Chart for the Week of September 19 2021 – Primary 1

If we use the overall structure from Case 2, and take it down a notch, in terms of wave type, the count puts the S&P500 in a minor 4 within the Intermediate 5. The RSI behavior matches up with minor/intermediate wave combinations better than intermediate/primary wave combinations. And the counts are more symmetrical. I still need to work with the first and second waves a bit, but you get the picture.

I know September and October are historically bad months, but a Primary 2 has the potential to take us back towards the Cycle 2 low back in March 2020. That’s somewhere between 3050 and 2200…which means a 30 to 50% bear market. I don’t see Case 1 as a likely option given the current financial environment…let’s put that at 25% probability.

Case 2 would put the S&P500 into a big correction, with a lower bound near 3600 (~19% from last week’s close). Given the financial backdrop at the moment, that seems more plausible than a 30-50% drop, but I think we’ll need to start raising rates, see sustained inflation, and earnings misses before that happens. Plus, the technical indicators (RSI and MACD) don’t appear to support the end of a primary wave. Again, I don’t see this as a likely option either, so call it a 25% chance.

Case 3 seems most probable at the moment. Additional downside from the current correction would be limited compared to Cases 1 and 2. I put the probability on Case 3 around 50%.

Posted in Historical Data, Market Trends | Tagged , , , , | Comments Off on Weekend Stock Market Outlook – September 19 2021

Weekend Stock Market Outlook – September 12 2021

Stock Market Outlook entering the Week of September 12th = Uptrend

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

ANALYSIS
The stock market outlook remains in an uptrend, but last week’s action did some damage. Will this week push it over the edge?

Technical analysis of daily SPX prices

SPX Price Chart for the Week of September 12 2021

The S&P500 ($SPX) starts the week in the middle of a price channel. Before last week, the index tried to break through the upper limit of the bullish price channel 5 days in a row, came up short on each attempt, and is now searching for support

The ADX flipped to bearish after Friday’s drop, putting this signal into a downtrend to start the week.

From a price and volume perspective, this signal remains in an uptrend for now. Price remains above the 50-day, and the index added 1 distribution day and lost a distribution day, so the count stays at 4. Trading volume was definitely to the down size last week, but the price moves (open to close) weren’t significant until Friday.

Technical analysis of daily SPX prices

SPX Price Chart for the Week of September 12 2021

For the Elliott Wave signal, the signal is mixed. The S&P fell below the i-wave high, creating an overlapping wave within the count shown over the past few weeks. Those are a no-no for EW, and it’s been a recurring challenge when trying to label the corrective waves since May. Either the count was incorrect and the 5th-wave is still extending, or the count was correct, and the September 2 was the end of Primary 1.  The good news is that the S&P should confirm it’s direction pretty quickly:

Since May, RSI(5) dipped below a reading of 30 on 4 occasions. Each time that day marked the end of a correction.  Friday marked the 5th time the RSI is below 30, and price hasn’t spent more than a day below the 34-day moving average (where it closed on Friday).

COMMENTARY
So far, September hasn’t disappointed if you were expecting volatility.

It’s truly a mixed message, so use this time as an opportunity to prune your portfolio. Watch your stops sell stocks showing weakness (fundamentally and/or technically), take profits from your winners, and look for investments that are hold up well over the next few weeks.

Best to Your Week!

Posted in Historical Data, Market Trends | Tagged , , , , | Comments Off on Weekend Stock Market Outlook – September 12 2021