Weekend Reading – Money and More – April 17 2021

Money

“Risk, then, comes in two flavors: “shallow risk”, a loss of real capital that recovers relatively quickly, say within several years; and “deep risk”, a permanent loss of real capital.”

“Now is the time to make sure your Asset Allocation is such that you can tolerate the storm. If you wait until the storm is upon us, it is too late.”

And More

In 1050 AD, the Native American cosmopolis of Cahokia was bigger than Paris (Credit: MattGush/Getty Images)

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Weekend Stock Market Outlook – April 11 2021

Stock Market Outlook entering the Week of April 11th = Uptrend

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

ANALYSIS
The stock market outlook shows an uptrend remains in place to start the week of April 11th.

Technical analysis of daily SPX prices

2021-04-11-SPX Trendline Analysis-Daily

A strong showing for the S&P500 ($SPX) last week. The ADX shows a strengthening, bullish trend taking shape, and a few more distribution days fell outside of the 5 week window, improving the count.

In the minus column, trading volume hasn’t accompanied the rally higher, it’s trended lower. The S&P looks extended from the 200day again, but not from other technical trendlines. The old upper channel becomes relevant again would support additional headroom.

Technical analysis of daily SPX prices

2021-04-11-SPX Elliott Wave Analysis-Daily-Primary1

The Elliott Wave count remains the same as the past couple of weeks, showing the S&P in the third wave of a Minor 5.

COMMENTARY
Friday’s rally into the close put the Dow Jones Industrial Average, S&P 500 and Nasdaq 100 at all time highs. Word on the street is that lots of funds were shorting the market (because, you know, it hit 4000, a round number), and had to cover. Monthly options expire this Friday, so we could see an uptick in volatility in the very short-term. Longer term, market volatility continues to drop, seemingly supported by a buy the dip mentality.

Earnings season begins this week with some big financial firms releasing their Q1 numbers (e.g. JP Morgan, Goldman Sachs, etc.).

Best to Your Week!

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Weekend Stock Market Outlook – April 4 2021

Stock Market Outlook entering the Week of April 4th = Uptrend

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

ANALYSIS
The stock market outlook shows an uptrend in place to start the week of April 4th.

Technical analysis of daily SPX prices

2021-04-04-SPX Trendline Analysis-Daily

The S&P500 ($SPX) ended the shortened trading week higher, crossing 4000 for the first time ever. The ADX finally joined the other signals in bullish territory, and 3 more distribution days fell off the count.

Technical analysis of daily SPX prices

2021-04-04-SPX Elliott Wave Analysis-Daily-Primary1

The Elliott Wave count remains the same as last week, showing the S&P in the third wave of a Minor 5.

COMMENTARY
Last week, the Biden administration unveiled the “American Jobs Plan”, proposing $2+ trillion in new spending over the next 8 years, including:

  • $620 billion for transportation infrastructure (roads, bridges, transit, electric vehicles)
  • $400 billion for domestic manufacturing and workforce development
  • $400 billion for disability/elderly care programs
  • $300 billion for housing
  • $200 billion for expanded broadband and electrical grid improvements
  • $180 billion in research and development focused on clean energy

Our infrastructure could use the help for sure, so this package could do a lot of good if handled correctly (i.e. real improvements are made rather than pork barrel spending and pet projects).

The goal is to make the spending “revenue-neutral”, which is another way of saying tax hikes. Right now, that would be increased corporate taxes. Not quite as high as they were prior to the Trump administrations tax cuts, and still near all time lows, but an increase either way. The last round of cuts were largely absorbed via increased dividends and share buy-backs, so it’s not clear how the increases will be addressed.

Best to Your Week!

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Weekend Stock Market Outlook – March 28 2021

Stock Market Outlook entering the Week of March 28th = Uptrend

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

ANALYSIS
The stock market outlook flipped after receiving confirmation of the new uptrend on Friday.  Better late than never, I guess.

Technical analysis of daily SPX prices

2021-03-28-SPX Trendline Analysis-Daily

The S&P500 ($SPX) trended lower for most of the week, before snapping finding support at the rising trendline and the 50-day moving average and snapping back sharply on Thursday and Friday.

The ADX still shows bearish price action in control, while two distribution days fell off the count, and one was added.  Friday’s action qualified as a follow-through day, so the price/volume signal switches to an uptrend with two asterisks.

Asterisk #1:  The number of distribution days is very high, especially considering this rally is just getting started.

Asterisk #2:  The follow-through day occurred outside the 10-day window that you’d typically like to see a strong follow-through.

Technical analysis of daily SPX prices

2021-03-28-SPX Elliott Wave Analysis-Daily-Primary1

The Elliott Wave count shows the S&P is now two waves into a Minor 5.

COMMENTARY
Not much in the way of economic news last week, although the Suez Canal blockage is something to keep an eye on.

One interesting note from the stock market was that as of Friday’s close, the S&P500 has risen ~81% from the market low on March 23, 2020! That’s an amazing 1 year return!

Best to Your Week!

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Weekend Reading – Money and More – March 27 2021

Money

“…sometimes it MUST go down in order to make the upside sustainable.”

“…different kinds of buyers and sellers come out at different times”

“…looking at a range of carefully selected metrics is useful, if only for assessing the probability of what comes next.”

And More

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Weekend Stock Market Outlook

Stock Market Outlook entering the Week of March 20th = Downtrend

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

ANALYSIS
The stock market outlook is still showing a downtrend; confirmation of the new uptrend hasn’t happened yet. The back and forth of price action continues to create “whipsaw” effects (false signals and/or delay new ones).

Technical analysis of daily SPX prices

2021-03-21-SPX Trendline Analysis-Daily

The S&P500 ($SPX) trended lower last week. The ADX flipped back and forth between bullish and bearish readings during the week (ever so slightly), landing in bearish territory at the time of this post. For the price/volume signal, 2 more distribution days were added to the count, bringing the total to 9. That level of selling isn’t great for the start of a new rally, but the market as a couple more days to get its act together. Price is still above the 50-day, so the signal remains “mixed”.

Technical analysis of daily SPX prices

2021-03-21-SPX Elliott Wave Analysis-Daily-Primary1

The current Elliott Wave count shows the S&P is one wave into the Minor 5. I’ve seen many different counts, which is common when the market is trying to figure out which way it wants to go.

COMMENTARY
Last week, many readers took issue with the downtrend signal, because price had just reached an all time high. They’re not “wrong” per se, as anyone looking at a 6 month or 1-year chart can see prices trending higher (myself included). Not to mention how counter-intuitive it is in the face of a massive government stimulus, direct payments to taxpayers, continued bond purchases by the Fed, and a reopening economy.

The questions are actually a good sign; it means readers are thinking for themselves and aren’t blindly following any one signal.

The purpose of the Weekend Market Outlook series is to provide an example of how using rules can limit risk when they’re part of a repeatable decision-making process. That means showing the good with the bad; when rules work and when they don’t. Unfortunately, any rule that limits losses can also limit gains.

If I adjust a signal because I don’t like it, I’ve changed the rules for that one point in time. The “process” is no longer “mechanical” (i.e. repeatable), which makes back-testing and evaluating performance more difficult. Instead, at the end of each year, I analyze whether the system reduced risk and if adjusting the rules could improve long-term performance. Sometimes new rules are better, sometimes they aren’t. At this point, I’m assuming an adjustment will be needed, but you know what people say when you assume.

This week is the one year anniversary of the bottom for the pandemic sell-off. While things are definitely NOT back to normal (unemployment, masks, and vaccines, oh my), the main concern has shifted to interest rates. Treasury yields continue to rise, with investors and traders focused on the 10-year as a sign of inflation. Central banks continue to make the case for keeping interest rates low, and that higher inflation will be tolerated for a while.

Some argue that interest rates aren’t really signaling high inflation as much as they are just returning to normal. Regardless, increasing interest rates are bad news for stocks with valuations that rely heavily on future earnings for any chance at profitability (we’re looking at you SPACs).

Best to Your Week!

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Weekend Reading – Money and More – March 20 2021

Money

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