Stock Market Outlook entering the Week of August 4th = Downtrend
- ADX Directional Indicators: Downtrend
- Price & Volume Action: Mixed
- Objective Elliott Wave Analysis: Downtrend
No way around it; ugly market action last week led to a shift in market outlook. Percentage-wise, not a huge sell off so far (~3.5%); the speed (3 days) and the volume (way above average) are concerning.
The ADX directional indicators crossed over on Wednesday, shifting that signal to a downtrend. Price/volume action was mixed; price remains above the 50-day moving average, but institutional selling shows a marked increase. OEW also confirmed a downtrend. OEW has been calling for a sell-off in recent weeks, so kudos the group.
2019-08-04 – SPX Trendline Analysis – Daily
The daily chart shows the S&P 500 ($SPX) resting on the 50-day moving average, with an elevated distribution day count. Wednesday and Thursday displayed “topping” action, which is when there is a large difference (spread) between the day’s high and low prices, but prices end up finishing the day near the low. On the plus side, the trendline we’ve been tracking hasn’t been broken yet.
2019-08-04 – SPX Trendline Analysis – Weekly
The weekly chart also shows our trendline intact, with prices hovering at the 10-week moving average. One potential positive; Friday’s close put the S&P near the 38% Fibonacci retracement level (not shown); a key support level for traders using technical analysis.
The U.S. Federal reserve cut interest rates by 0.25%, but also signaled that it was “one and done”. Too much? Not enough? It seems like no one was happy with the outcome, nor do they believe it’s one and done. But I don’t think the cut was the culprit. To me, the real catalyst came in the form of a tweet; the announcement of an additional 10% tariff on Chinese goods. Most of the immediate sell-off from the rate cut had been recovered by the time the tweet was released! That surprised the investment community, and the only kind of surprises they like are companies beating expectations.
Given the fact that the S&P sits on some key support levels, I expect a rebound early next week. Hopefully it comes with higher volumes, and we can say this downtrend was just a little tantrum thrown by surprised investors.
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Charts provided courtesy of stockcharts.com.
If you’re interested in learning more about the relationship between price and volume, or how to find and trade the best stocks for your growth strategy, check out this book on Amazon via the following affiliate link: How to Make Money in Stocks: A Winning System in Good Times and Bad. It’s one of my favorites.
For the detailed Elliott Wave Analysis, go to the ELLIOTT WAVE lives on by Tony Caldaro.
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.
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