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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