Stock Market Outlook entering the Week of February 28th = Uptrend
- ADX Directional Indicators: Downtrend
- Price & Volume Action: Mixed
- Elliott Wave Analysis: Mixed
The stock market outlook remains in an uptrend. Not because of “strength”…more just a lack of sufficient weakness, as only one signal confirmed a downtrend.
The S&P500 ($SPX) sold off again last week, but not without the return of some volatility. Even with the sell-off, price sits ~9.5% above the 200 day moving average.
The ADX flipped Monday, and heads into this week with the Directional Indicators firmly bearish and a strengthening trend. Three distribution days were added to the count, adding to the case for a downtrend. But price closed right on top of the 50-day moving average, so the price/volume signal is mixed.
If the S&P closes below the 50-day, this signal will flip to a downtrend, joining the ADX.
For Elliott Wave, the S&P wasn’t able to find support at the 13 or 34 day moving averages. It’s possible a 5th wave just ended, which would mean it’s time for a correction. The size of that correction depends on whether you think we’re in a bull or bear market and how long we’ve been in it (i.e. which 5th wave just ended – Cycle, Primary, Intermediate, Minor…or was is a B-wave).
Ultimate confirmation (i.e. signal change) occurs if price crosses the Wave 4 low (~3700). Otherwise, the current wave pattern may have further upside. In either case, proceed with caution, and let price tell you what to do.
Most of the S&P 500 has reported 4th quarter earnings, and surprised to the upside. The next round of earnings will compare with Q1 2020; the first reports to be significantly impacted by the pandemic.
The interest rates on 10-year treasuries continued to climb last week, crossing the proverbial line in the sand of 1.5%. Even though rates retreated a bit by the end of the week, 1.5% is considered the first one that could cause some re-balancing and or sector rotation in longer-term portfolios.
If rates continue to rise, financials and energy plays are likely to see the most benefit. Technology stocks and other high-valuation names will see selling pressure, as higher rates lower the future value of their earnings.
Best to Your Week!
P.S. The 2020 Annual Performance Report is out; check it out here: https://www.invest-safely.com/stock-market-outlook-2020-performance.html