Stock Market Outlook entering the Week of November 5th = Uptrend
- 20/50 Day Moving Averages: Uptrend
- Price & Volume Action: Uptrend
- Objective Elliott Wave Analysis: Uptrend
We’re entering the 10th week of the current uptrend, which has shown no signs of stopping.
Most of the U.S. market averages begin the week above their 20 and 50 day moving averages. The Russell 2000 was unable to retake its 20 day during the week and sits just below that level, while the NYSE is just above the 20 day.
Price and volume action is still okay. Most leaders are still in profit taking zones (>20% from buy points), so you haven’t missed your chance to lock in gains.
In the latest weekend update, OEW continues to indicate an uptrend is in play.
I’ve been reading a lot of market commentary, attributing the general strength of stocks to the amount of money being used for “passive investing”. I’ll over simplify here, and say that means putting your money into mutual funds and ETFs that track a group of stocks (typically averages or indexes)
In the past, a market index was just an indicator…the average price performance of a set of stocks. It was just a measurement tool. Today, there are all kinds of investments that allow you to allocate your money just like an index; basically buying all the components of the index, both good and bad.
When buying an index ETF, for example, the ETF attempts to represent all stocks in that index…both good and bad. As more money goes into a stock, the price increases. If we invest in all the stocks that make up an index, the price of all the stocks increase, and so does the price of the index. And so our markets grind higher.
Beneath the surface, the fear is that stock prices are disconnected from the underlying value of a company. Money isn’t being invested in companies because their fundamentals are strong or they have good technical patterns. Instead, money is being invested in stocks that make up an index, regardless of company performance.
The whole situation reminds me of taking a thermometer and putting it next to a lightbulb to show that you have a fever. The thermometer is just measuring the temperature of the environment, regardless of whether its in your mouth or next to a light bulb. An index ETF is just measuring the change in price of stocks included in the index, regardless of whether those companies are performing well or if they’re being bought solely because they’re part of that index.
If this development is true, it’s neither good nor bad. It just is…the key is remembering that you can’t fight the market. Regardless of the reason for the markets strength, accept that it is strong and stay vigilant for signs of weakness (e.g. high volume selling).
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You can check out how well (or poorly) the outlook has tracked the market 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.