Weekend Stock Market Outlook

Stock Market Outlook entering the Week of January 20th = Uptrend

  • 20/50 Day Moving Averages: Uptrend
  • Price & Volume Action: Uptrend
  • Objective Elliott Wave Analysis: Uptrend

COMMENTARY
Another solid week of gains in the stock markets has the weekend market outlook showing green.  Reports of progress on a trade deal with China seems to be the catalyst.  Watch the $VIX; it’s approaching 16, which has been a floor during the recent downtrend.  And a short trading week this week, as US markets are closed Monday to observe Martin Luther King Day.

All the indexes start the week above their 50 day moving averages, with the S&P closing above that level on Thursday, which puts this signal back to an uptrend.

Price charts for $SPX,$COMPQ,$INDU,$NYA,$RUT,$VIX

2019-01-20 – us stock market averages

Price and volume also looks positive, with prices back above the 50-day moving average and accumulation days outpacing distribution.  Overall, trading volume is still below average, and lower than I’d expect for the speed with which market prices have rebounded.

OEW is evaluating 5 criteria to determine if the market will retest the December low, or if the bear market has already ended:  the size of rally, NDX/NAZ and SPX/DOW wave patterns, rebound percentage from the low, and breadth rise from the low.  Right now, the size/percentage of the rally and NDX/NAZ criteria point to an end to the bear market, putting the odds of an uptrend at 60%.  So this signal moves to an uptrend as well.

2019-01-20 - SPX Trendline Analysis - Daily

2019-01-20 – SPX Trendline Analysis – Daily

The S&P ($SPX) punched through the 2,600 resistance level mentioned in the last update.  The DI+ / DI- crossed over early in the week, supporting the case for an uptrend.  Next up is the downward trendline created in 2018 Q4; piercing that level would confirm an end the bear market.

2019-01-20 - spx trendline analysis - weekly

2019-01-20 – SPX Trendline Analysis – Weekly

Switching to a weekly view, prices appear to have broken the downtrend created in Q4.  But there hasn’t been a higher “low”, in terms of closing prices yet, so it’s hard to define the new uptrend.  Weekly prices have closed at or near the high for the past 4 weeks, creating a steep trendline.  Even a trend drawn through the intra-week lows is steep.  At this rate, the S&P would be back to the 2018 Q3 highs within the next 3-4 weeks!

The situation reminds me of the last week in November 2018.  All the signals went green and everyone pointed towards a year-end rally. Then KABLAMO, prices dropped like a rock.  It just feels like a whipsaw is coming, and within the next week or two, I’ll be writing about a signal change again.  Fool me once, shame on you.  Fool me twice…participate and protect indeed.


If you find this research helpful, please tell a friend. If you don’t find it helpful, tell an enemy. I share articles and other news of interest via Twitter; you can follow me @investsafely. The weekly market outlook is also posted on Facebook and Linkedin.

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.

For the detailed Elliott Wave Analysis, go to the ELLIOTT WAVE lives on by Tony Caldaro.  Charts provided courtesy of stockcharts.com.


 

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Market Insights from JP Morgan for 2018 Q1

Each quarter, JP Morgan Asset Management provides a ton of useful information via its “Guide to the Markets”:

“a comprehensive array of market and economic histories, trends and statistics through clear, compelling charts and graphs you can share with your clients.”

You can find this little gem on JP Morgan’s Asset management website, including the “Guide to the Markets” PDF and audio commentary.  Topics include Equities, Fixed Income, International markets, the U.S. economy, as well as alternative investments and investor behavior.

Since this edition covers all of 2018, we can even take a look at annualized asset class performance.  Cash was king last year…though with a 1.8% return that’s not saying much.

Asset Class Performance

2004-2018 Asset Class Performance – JP Morgan

An inverted yield curve is a pretty good signal for a recession.  As discussed before, where not quite there yet.  I seems like an inevitable outcome of rate hiking cycles…maybe it will get postponed like the mid-90’s.

US yield curve and recessions

US yield curve and recessions – JP Morgan

After the 2018 Q4 sell-off, some valuation measures for the S&P500 look pretty good verses a 25 year average.  Forward P/E ratio is affected by our abnormally low interest rates, so I wouldn’t say the S&P is “cheap”.  But it’s trending in the right direction if you’re looking to add more dividend plays to your portfolio.

SP500 PE Ratio

SP500 Valuation Measures – JP Morgan

 

Sources:


JP Morgan Guide to the Markets: Q1 2019
https://am.jpmorgan.com/blob-gim/1383407651970/83456/MI-GTM_1Q19_Linked.pdf?segment=AMERICAS_US_ADV&locale=en_US

 

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Weekend Stock Market Outlook

Stock Market Outlook entering the Week of January 13th = Downtrend

  • 20/50 Day Moving Averages: Downtrend
  • Price & Volume Action: Mixed
  • Objective Elliott Wave Analysis: Downtrend

COMMENTARY
Constructive price action continues, but so does the downtrend.

All of the indexes are above their 20 day and are posed to test their 50 day moving averages.  Continuing the prior week’s trend, prices rose while trading volume declined; not the best situation for a new uptrend.  A few growth stocks did indeed break-out, but not nearly enough to power the markets higher.  I’m still looking for indexes to break above their 50-day moving average before changing these signals.

Price charts for $SPX,$COMPQ,$INDU,$NYA,$RUT,$VIX

2019-01-13 – US Stock Market Averages

OEW continues to signal a downtrend.  Tony reiterated his call that the S&P takes another run at the lows before calling a bottom, and provided some research to bolster the claim:

“While all this was going on we were doing some research into historical market activity that is similar to this. We found five events[…]. In every one of the five instances the market rallied between 7.5% to 13% after the significant low. In four of the five instances, when the rally concluded, the market retested the lows. The one exception still had a 61.8% pullback.

We also looked into momentum measures…there are only three instances. In each of the three instances momentum rose 20% to 25% before the market reversed and went back to retest the lows. It is currently up 17%.

Probabilities suggest a decline soon that mostly likely retests the lows.”

The S&P ($SPX) maintained upward momentum last week, but ran into resistance around 2600.  Prices reached a high of 2595,2597,2596 on Wednesday, Thursday, and Friday, respectively.  Combined with falling trading volumes, we may have just found a near-term high.

SPX Technical Analysis - Daily

2019-01-13 – $SPX Technical Analysis – Daily

Switching to a weekly view, the market closed at its 10-week moving average; could this be contributing to the lack of progress we saw on the daily chart during the back half of last week?

SPX Technical Analysis - Weekly

2019-01-13 – $SPX Technical Analysis – Weekly

Either way, the weekly view indicates that we should see a confirmation of direction soon, because the downtrend line rests at 2,650 (+2%), and the 40-week moving average is right around 2,700 (+4%).

Are we out of the weeds?  I have no idea.  I know where I’d like them to go, but the markets tend to discount my opinion…as they do everyone else’s.   The Fat-Pitch has some historical perspective this week, similar to OEW, with a positive twist:

“Sharp falls of at least 15% have a strong tendency to have their original low retested in the weeks/months ahead. But what is notable this time is the exceptional breadth that has driven the indices higher: in the past 70 years, this has never taken place within the context of a bear market. The Christmas low may still get retested, but it seems likely to hold and new highs are probably ahead. Nothing in the stock market is ever guaranteed, but this has been the consistent, historical pattern.”

We’ll need a catalyst to turn the rally into a new uptrend; “FANG” earnings maybe?


If you find this research helpful, please tell a friend. If you don’t find it helpful, tell an enemy. I share articles and other news of interest via Twitter; you can follow me @investsafely. The weekly market outlook is also posted on Facebook and Linkedin.

You can check out how well (or poorly) the outlook has functioned as a stand-alone, signal generator using past performance estimates:

For the detailed Elliott Wave Analysis, go to the ELLIOTT WAVE lives on by Tony Caldaro.  Charts provided courtesy of stockcharts.com.


 

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Weekend Stock Market Outlook

Stock Market Outlook entering the Week of January 6th = Downtrend

  • 20/50 Day Moving Averages: Downtrend
  • Price & Volume Action: Mixed
  • Objective Elliott Wave Analysis: Downtrend

COMMENTARY
Happy New Year! With payrolls coming in WAY above estimates (73%), and a Fed speech promising “to adjust policy quickly and flexibly” if needed, the markets were in a festive mood last week.

The NYSE and Russell 2000 start the first full week of trading in 2019 above their 20 day moving averages, while the S&P, NASDAQ, and DJIA sit just below that mark.  All of them are still below their 50 day (and 200 for that matter), so no change in the signal.

Price charts for $SPX,$COMPQ,$INDU,$NYA,$RUT,$VIX,$TNX,$USD,$CRB,$GOLD

2019-01-06 – us stock market averages

The price/volume combo shifts to mixed to start the week.  Price action has been constructive, and Friday appears to give us a follow-though day.  But trading volume wasn’t great, few growth stocks are ready to break-out, and prices need to recover their 50-day moving average for a sustainable uptrend to take hold.

OEW continues to signal a downtrend.  Tony still thinks we need to take another run at the lows before calling a bottom and declaring an end to our 3 month bear market.  But that doesn’t mean we can’t or won’t have a small rally first.

After finding support around 2,350, the S&P ($SPX) found another floor near 2,450.  Trading volume wasn’t great, but holiday weeks tend to be that way.  The ADX still shows a bearish trend.

2019-01-06 - spx technical analysis - daily

2019-01-06 – spx technical analysis – daily

Switching to a weekly view, prices have some work to do before reaching their next resistance level.

2019-01-06 - spx technical analysis - weekly

2019-01-06 – spx technical analysis – weekly

It seems that all the pundits have jumped ship and are saying 2019 will be challenging for investors…I guess that means we shouldn’t be surprised to see a massive rally!  Either way, now is a great time to review your trading in 2018 and make improvements to ensure that 2019 will be a profitable year (the “Adjust” part of my process).

For example, in 2017’s performance review, I mentioned that the market outlook may need an upgrade.  The moving average and price/volume signals were very similar, and I was also looking for a way to decrease the impact on “whipsaws” (quick price changes that generate false or bad signals) on trading system performance.

And at the start of Q2, you may have noticed that some trendline analysis, along with the ADX indicator, was added to the market outlook.  The goal was to proactively vet new signals, real-time, during 2018.  I’ll publish a comparison as part of the upcoming 2018 performance review.  And, if there’s an improvement, look for some changes in the weekly posts.

How did your process fair during 2018?  Was it robust enough to handle changes?  What improvements will you be making in 2019?


If you find this research helpful, please tell a friend. If you don’t find it helpful, tell an enemy. I share articles and other news of interest via Twitter; you can follow me @investsafely. The weekly market outlook is also posted on Facebook and Linkedin.

You can check out how well (or poorly) the outlook has functioned as a stand-alone, signal generator using past performance estimates:

For the detailed Elliott Wave Analysis, go to the ELLIOTT WAVE lives on by Tony Caldaro.  Charts provided courtesy of stockcharts.com.


 

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Weekend Stock Market Outlook

Stock Market Outlook entering the Week of December 30th = Downtrend

  • 20/50 Day Moving Averages: Downtrend
  • Price & Volume Action: Downtrend
  • Objective Elliott Wave Analysis: Downtrend

COMMENTARY
Better late than never?  We had to wait until after Christmas, but Santa Claus delivered a rally.  Not as much as we would have liked, I’m sure, but better than another sell-off.  No change in outlook though.  Equities have some work to do before giving the all clear to put your money at risk.

On the bright side, I don’t think we’re in danger of a 2008-2009 style sell off just yet (see last week’s article “Great Recession Revisited”), so your portfolios should recover a bit.

All the indexes are well below their 20, 50, and 200 day moving averages.

Price charts for $SPX,$COMPQ,$INDU,$NYA,$RUT,$VIX,$TNX,$USD,$CRB,$GOLD

2018-12-30 – US Stock Market Averages

The price/volume combo remains in a downtrend as well.  There are only a handful of names on my growth stock list that have anything even close to resembling a solid price chart.

OEW still calls for a downtrend, and thinks we could take another run at the lows.  But, per their analysis, that could be the end of the downtrend…even the bear market(!).

The S&P ($SPX) found support around 2,350, and looks to have broken the falling trendline in play for most of December.  Prices still have to recover ~10% just to get back to the downward trendline and/or 200-day moving average!  The ADX reflects the bearish we experienced last week.

2018-12-30 - SPX Technical Analysis - Daily

2018-12-30 – SPX Technical Analysis – Daily

Switching to a weekly view, the 2395 support level held and prices are resting on the 2480 support/resistance level.

2018-12-30 - SPX Technical Analysis - Weekly

2018-12-30 – SPX Technical Analysis – Weekly

After the bounce back, bulls will say we’re a week into a V-shaped recovery.  The bears will say we need another test of the lows to truly bottom.  Our job is to make money or not to lose a lot if we decide to initiate positions.

We’ve got another holiday shortened trading week coming up as we celebrate the new year.

Wishing you investing success in 2019!

Happy New Year!


If you find this research helpful, please tell a friend. If you don’t find it helpful, tell an enemy. I share articles and other news of interest via Twitter; you can follow me @investsafely. The weekly market outlook is also posted on Facebook and Linkedin.

You can check out how well (or poorly) the outlook has performed as a stand-alone, signal generator using past performance estimates:

For the detailed Elliott Wave Analysis, go to the ELLIOTT WAVE lives on by Tony Caldaro.  Charts provided courtesy of stockcharts.com.


 

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Great Recession Revisited?

A few days back, a reader sent me an email entitled “Great Recession Revisited”.  The note included the following tweet, and asked if I felt the same way:

I certainly understand the sentiment.  No confidence in the Fed or government?  Check.

Unrelenting selling?  No bottom is sight?  Definitely feels that way, especially this December.

Down 1-3% on a daily basis?  True, but we’ve been in an abnormally low volatility market recently, so I think that feels worse than it really is…FWIW, 2008-2009 was more like 3-5% on a daily basis.

Hopelessness on par with 2008-2009?  Uh…no.  Not even close.   Back then, the recession was in full swing; layoffs were everywhere, nightly news focused on the collapse of financial institutions, and small companies were having problems making payroll because of illiquid credit markets!

Is there apprehension?  You better believe it.  Economic fundamentals are beginning to decline and we have a few warning signs for a recession in the next 9-24 months.

Check out last week’s review of economic indicators in “On My Radar” from Steve Blumenthal:

  • High risk of global recession?  Check!
  • Unemployment?  Actually, labor markets are still improving.
  • Yield curve?  Flattening, but not inverted yet.
  • Credit conditions? Favorable.
  • Corporate Debt?  A lot…not good!
  • Valuations?  Even higher than 2007, before the Great Recession…also not good!

So while some aspects are a bit off, I agree with embracing the fear and uncertainty and learning from it.  Looking through Steve’s charts, 2006 and 2007 painted a similar picture to the above.  Outside of those economic indicators, I see a lot of similarity between 2018 and 2007 as well.  Check out the VIX…

Daily VIX level for the past 20 years

We’re just beginning to experience the volatility coming off record lows…just like 2006 and 2007.

Price action is also similar to late 2007…eerily similar for the S&P500.  The timeframe is off by a week or two, but overall results are similar.  A 16% decline by the start of the new year (1).

2008-01-18 - SPX Technical Analysis - Weekly

2008-01-18 – SPX Technical Analysis – Weekly

Bear Sterns went under that March and the S&P hit a new low, before indexes rallied back to a trendline (2).  By mid-2008, stocks were just one of MANY types of investments getting hammered, and that was before volatility really took off (3,4).

2008-12-18 - SPX Technical Analysis - Weekly

2008-12-18 – SPX Technical Analysis – Weekly

The saying goes “History doesn’t repeat, but it often rhymes”.  If we’re going to see another 2008-2009 style, recessionary sell-off, I’d expect economic indicators to be weaker beforehand.  There’s no shortage of reasons that could happen, so pick your poison.  In the meantime, that would give stocks a chance to rebound, creating the classic bull trap (2).

2001-2019 - SPX Weekly Price Chart

Or, maybe the “bull trap” occurred in 2018 Q3…maybe we have one, last rip your face off rally!  No one really knows.  As has been said many times on this blog, “You can’t predict, you can only prepare.”

Great Recession revisited?  Not quite…or at least not yet.  Instead, the markets have given investors a wake up call.   So the question isn’t whether we’re going to see another recession…the question is “What are you doing to prepare?”

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Weekend Stock Market Outlook

Stock Market Outlook entering the Week of December 23rd = Downtrend

  • 20/50 Day Moving Averages: Downtrend
  • Price & Volume Action: Downtrend
  • Objective Elliott Wave Analysis: Downtrend

COMMENTARY
Investors say that prices take the stairs on the way up, and the escalator on the way down.  I think the market opted for the elevator this month.  But there’s still hope; the Santa Claus rally (sustained increases in the stock market that begin on December 26th and extend through January 2nd) is still on the table.

All the indexes are WAY below their 20, 50, and 200 day moving averages.

Price Charts for $SPX, $COMPQ, $INDU, $NYA, $RUT, $VIX

2018-12-23 – US Stock Market Averages

The price/volume combo remains in a downtrend as well.  Volume rose during the week, then exploded Friday. The quadruple witching day (market index futures, market index options, stock options and stock futures expired) at the end of the last full trading week in 2018 was the main catalyst.

OEW (downtrend) saw last week expected support level wiped out by falling prices:

There were three Fibonacci retracement levels for support..: (38.2%) 2509, (50.0%) 2376, and (61.8%) 2242. Obviously the first one did not hold. Our worse case support has been around SPX 2400, which is also close to the 50% retracement…

On to some trendlines. Sadly, there was no bounce back to the recent trading range, nor was there a floor of support from early 2018.  The S&P ($SPX) fell to prices we haven’t seen in over a year (August 2017).  Now we need to go back almost 2 years to see where we might bottom…elevator indeed.

2018-12-23 - SPX Technical Analysis - Daily

2018-12-23 – SPX Technical Analysis – Daily

There was support around 2480, which would have been a 16% correction. Next up is 2395 (similar to the OEW viewpoint), then we go down to 2276, and then on to 2184. Those levels represent 19%, 23%, and 26% declines from the all time of 2940, respectively.

2018-12-23 - SPX Technical Analysis - Weekly

2018-12-23 – SPX Technical Analysis – Weekly

Right now, the SPX is ~18% from the September high, which is the largest correction since 2011 (~20%).  Not quite bear market territory, but close…no wonder the twitterverse is losing its collective mind.

To be fair, we haven’t seen many corrections since 2009.  And when we did see a drop, it was typically V-shaped with prices rebounding quickly.  So it’s rational to think these moves to the downside are abnormal. They’re not.

$SPX vs 200-day moving average

SPX vs 200-day moving average

Historically, stocks look really oversold right now. Could they go lower and be more oversold? Of course. Either way, last week’s action is a fantastic opportunity to review your buy and sell rules. When the markets are “always” in an uptrend, it’s easy to lose discipline and not get burned. Even when the markets move sideways, investors don’t want to “trade”, so they ignore signals and wait for a rebound.

We’re not in a recession just yet, so a v-shaped recovery wouldn’t surprise me. Maybe the executive and legislative branches will act like adults, reach an agreement, end the government shutdown, and the Santa Claus rally will come to town.  Now that would be a Christmas miracle.

We have a short, low volume trading week ahead, with partial session Monday (Christmas Eve) and no trading on Tuesday (Christmas Day). A great time to log out of StockTwits, turn off CNBC, and relax!

Warmest wishes and a joy filled holiday week to you and your family.

Merry Christmas!


If you find this research helpful, please tell a friend. If you don’t find it helpful, tell an enemy. I share articles and other news of interest via Twitter; you can follow me @investsafely. The weekly market outlook is also posted on Facebook and Linkedin.

You can check out how well (or poorly) the outlook has performed as a stand-alone, signal generator using past performance estimates:

For the detailed Elliott Wave Analysis, go to the ELLIOTT WAVE lives on by Tony Caldaro.  Charts provided courtesy of stockcharts.com.


 

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