The Safe Investing Blog

Stock Market Outlook entering the Week of October 11th = Uptrend

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

ANALYSIS

The stock market outlook flipped over early last week, and starts this week in an uptrend.

2020-10-11-SPX Trendline Analysis-Daily

The S&P500 ($SPX) experienced a really good week, finding support at the 50-day moving average and rallying from there. The ADX and price/volume flipped to an uptrend on Monday. And since price rose above 3429, Elliott Wave also shows an uptrend, and more than likely a switch to a bullish count like the one mentioned last week.

COMMENTARY

Stimulus remains the driving force behind the U.S. markets. Only right now, it’s the negotiations, not the actual money. It doesn’t appear to be a “will they / won’t they” decision. Both political parties seem to recognize that government assistance is still required to keep the economy afloat while the pandemic continues to play out. The question is how much will be approved (converging around 2 trillion), and when it will get passed (pre or post-election).

The Fed is also pushing for renewed fiscal support from the legislature, and remains ready to keep policy “accommodating” (i.e. expect interest rates to remain low for a while).

Best to your week!

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!

Stock Market Outlook entering the Week of September 27th = Downtrend

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

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

2020-09-27-SPX Trendline Analysis-Daily

The S&P500 ($SPX) continues correcting towards the 200-day moving average. The ADX and price/volume remain bearish; price remains below the 50-day moving average with a high level of institutional selling.

If the bearish trendline holds, prices should retreat early this week. On the bullish side, look for a large advanced on high trading volume as a signal that a new rally is taking shape.

2020-09-27-SPX Elliott Wave Analysis-Daily-Intermediate 1

For the Elliott Wave signal, price fell below 3279 during the week, invalidating the 3rd wave count shown previously and confirming the near term downtrend.

I’ve researched a few different viewpoints, and settled on Intermediate 1 of the Primary C wave.  It’s a very bearish count and suggests the S&P will retest the March low.  I only think that’s possible if we have a very gradual, slow moving decline.  Any kind of volatility, and expect the Fed to step in to support the market.  If/when that occurs, the count likely shifts to a bull count (e.g. Primary [A] shifts to a Primary 2, Primary [B] shifts to a Intermediate 1, etc.)

Either way, the Elliott Wave signal is in a downtrend to start the week. If the S&P can get above 3310, then the current leg of the downtrend is probably over, since the current wave shouldn’t overlap with the prior wave peak from Sept 11.

COMMENTARY
As expected, September wasn’t a great month for U.S. stocks. But that doesn’t mean we’re out of the woods yet. It’s an election year, so next month we’ve got the “October surprise”. And if that last election is any indication, stocks could be in for a wild ride in November.

Best to your week!

Stock Market Outlook entering the Week of September 20th = Downtrend

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

ANALYSIS
The stock market outlook switches to a downtrend to start the week. The ADX signal was joined by the price/volume signal in bearish territory, while Elliott Wave isn’t too far away from a switch either.

2020-09-20-SPX Trendline Analysis-Daily

The S&P500 ($SPX) is still ~7% away from the 200-day moving average. More concerning was Friday’s drop below the 50-day moving average on higher than average trading volume.

The ADX flip flopped again last week, and again starts the current week showing a bearish environment.  A couple of heavily selling days and a drop below the 50-day landed the price/volume signal in downtrend territory, as mentioned in last week’s post.

Friday was a quadruple witching day, so option expiration skewed price movements somewhat. Still, it’s better to protect your capital; be safe not sorry. Look for a rebound from the 50-day on strong volume to confirm that the correction is complete.

2020-09-20-SPX Elliott Wave Analysis-Daily-Intermediate C

For the Elliott Wave signal, price only fell to 3292, so the current count remains in place. If the S&P falls below 3279, then the count will need to be adjusted and this signal will likely flips to a downtrend as well. Otherwise, we should start the 5th wave shortly and head higher.

COMMENTARY
In Europe, we could be seeing the start of a second coronavirus wave.

If you’ve been trading this uptrend and recently entered positions, remember to keep your losses small and sell if your 7-8% below your buy price. The big tech names that were driving the indexes higher are near their 50-day moving averages, so don’t fight the market. You can always buy back in when and if prices recover.

When planning your trades, keep in mind that September isn’t great for stocks historically, and we typically see a sell off during the second half of the month.

Best to your week!

Stock Market Outlook entering the Week of September 13th = Uptrend

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

ANALYSIS
Despite last week’s volatility, the stock market outlook is still in an uptrend.  The ADX starts bearishly, price/volume is mixed, and Elliott Wave shows an uptrend.

2020-09-13-SPX Trendline Analysis-Daily

We can’t say the sell off was a surprise, given how much the S&P500 ($SPX) was extended from the 200-day moving average.  The technology sector took the brunt of the selling, with the Nasdaq dropping ~10% from it’s all time high in 6 days of market action.

The ADX flip flopped during the week, ending up back where it started:  showing a bearish environment.

The S&P added a few distribution days in succession, while price remained above the 50-day moving average.   Another 2 or 3 days of heavy selling, coupled with a break of the 50-day, will put this signal into the red.

2020-09-13-SPX Elliott Wave Analysis-Daily-IntermediateC

For the Elliott Wave signal, price stayed above 3279 (the end of the first wave in the summer uptrend), so the current count remains in place.

It remains to be seen if all the damage is done, or if there’s more to come.  Throughout the uptrend, sell-offs have been over quickly, so the 4th wave could be over already!  But September isn’t a good month for stocks, so a quick recovery may not be in the cards either.

COMMENTARY

This week, I’m going to send you over to Cumberland Advisors and David R. Kotok.  He provides access to a fascinating perspective from Brent Donnelly at HSBC, showing the similarities between today’s environment and 1968.

On September 3, Brent penned “Echoes of ’68,” a thought-provoking comparison of the years 1968 (remember that doozy?) and 2020. Did you know that ’68 included a global pandemic that killed 4 million, including 100,000 Americans? The similarities between the two years in the economy and markets are striking, too.

2020-09-13 – HSBC – Echoes of 68

Best to your week!

Stock Market Outlook entering the Week of September 6th = Uptrend

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

ANALYSIS
The stock market outlook remains in an uptrend, but last week’s sell-off did some damage, as the ADX flipped to a downtrend.

2020-09-06-SPX Trendline Analysis-Daily

The S&P500 ($SPX) sat ~14% above its 200-day moving average on Wednesday, which was finally enough to bring the sellers out.   The May to June trendline and the 34-day moving average appear to have held…at least for least week.  The average currently sits ~10% above the 200-day, so we’re still fairly extended based on historical performance.

The ADX flashed a bearish cross-over on Friday, moving this signal to a downtrend.  Price and volume action remains bullish, still showing a limited number of distribution days and remaining above the 50-day moving average.

2020-09-06-SPX Elliott Wave Analysis-Daily-IntermediateC

I’m still not confident in the Elliott Wave count, but I’m expecting another run at the all time high before the rally is over.  I placed the major retracement levels for the rally in the chart above, just in case the 5-wave is now complete (as I had been labeling this run-up previously).

If it was a 3 that just ended, then the sell-off should find additional support near 3279 (the end of the first wave in the summer uptrend and the 50-day moving average).  Otherwise, the 200-day moving average is in play, as well as the 38.2% retracement level.

2020-09-06-SPX Trendline Analysis-Weekly

In the weekly view, a negative RSI divergence shows up, which is why it’s possible for a 5th wave ending last week.  The megaphone pattern we discussed a few weeks back appears to have held, with the S&P barely breaching the upper-bound before falling lower.

COMMENTARY

While the “markets” may be surging higher, it has been on the backs of large technology companies. Amazon, Apple, Facebook, Google, and Microsoft are the 5 largest companies in the index, and account for almost a quarter of the S&P 500’s current market cap. Basically, 1% of the 500 companies in the index account for 25% of the combined “value” of all 500.

But market cap doesn’t really tell the whole story. Through the end of August, the total return for the S&P500 was ~9.7%. The weighted average return for the top 5 largest companies was ~15.6%. That means the weighted average return for the other 495 stocks in the index was…-5.8%. That’s right…down for the year (hat tip to CMG). And September is the weakest month, in terms of historical returns.

With prices near all time highs, an ADX cross-over, and a “mature” uptrend in Elliott Wave, it’s time to review your positions (sizing and performance). Play with house money (aka your profits) where you can, cut your losses where you can’t.

Short week ahead, as the U.S. exchanges are closed tomorrow for the Labor Day Holiday.

Best to your week!