Stock Market Outlook entering the Week of October 4th = Downtrend

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

ANALYSIS

The stock market outlook continues show a downtrend to start this week, with the ADX and Elliott Wave in downtrends.  Price/volume is mixed.

The S&P500 ($SPX) gapped up to start last week, breaking through the bearish trendline. 

2020-10-04-SPX Trendline Analysis-Daily

The ADX starts this week in a downtrend, while the price/volume moved to mixed. The S&P registered a follow-through day (>1% move on higher volume) on Wednesday, but sold-off into the close.  Price starts the week below the 50-day moving average, so I’m calling this signal mixed for now.

2020-10-04-SPX Elliott Wave Analysis-Daily-PrimaryC

Elliott Wave is still showing a downtrend, and it’s easy to see three waves down…you can make 5 if you squint.  The S&P breached 3310, which was the first sign that the current leg of the downtrend was completed. 

I mentioned seeing a bunch of different counts last week, and someone asked for my “bullish” view (i.e. the Feb to Mar sell-off was the complete downtrend and now we’re back in an uptrend).  Here it is:

2020-10-04-SPX Elliott Wave Analysis-Daily-Primary1

The bullish view appears to show we’re in the 5th wave of a Primary 1 uptrend (verses the 1st wave of a Primary C downtrend in my bearish count).  The problem with this count is the overlap of (1) and (4).  It’s not a lot, but it’s there.

Either way, getting above 3429 would confirm an uptrend, while falling below 3200 reconfirms a larger downtrend.

2020-10-04-SPX Trendline Analysis-Weekly

In the weekly view, the negative RSI divergence shows up, which is why it’s possible we ended a 5th wave.  And I’m still showing the bearish count here.

COMMENTARY

Well, I guess we didn’t have to wait long for an October surprise; the U.S. president tested positive for COVID-19. Then again, there are a lot of people that don’t think that is surprising. The Presidents health will dominate the news cycle this week, at a minimum, so expect volatility.

The U.S. unemployment rate is running around 8%, but job creation slowed. Fiscal stimulus, which many believe to have been the catalyst for the market recovery, is still being negotiated.

A while back, there was a debate about the “shape” of the recovery: U-shaped, V-shaped, L-shaped. As far as stocks are concerned, everyone was wrong…it was K-shaped! Technology and stay-at-home stocks (e.g. Amazon) experienced the V-shape, while more traditional/value stocks (e.g. Chevron or Glaxo-Smith) experienced something like the L-shape.

Best to your week!