The Safe Investing Blog

Stock Market Outlook entering the Week of January 31st = Uptrend

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

ANALYSIS

The stock market outlook still shows an uptrend, but there’s bearish price action across the board.

2021-01-31-SPX Trendline Analysis-Daily

The S&P500 ($SPX) price channel broke down last week, and price now rests right on the 50-day moving average.  Breaking that level next week would shift the signal AND the overall market outlook, so stay frosty.  And price is ~10% above the 200-day, which is still on the high side, historically.

The ADX directional indicators crossed over Wednesday, but the trend is still weak.  Two distribution days were added to the count, but the price/volume signal hasn’t flipped just yet.

2021-01-31-SPX Elliott Wave Analysis-Daily-Primary 1

Elliott Wave shows a near term downtrend in place i.e. 4th wave), There was a slight divergence in the RSI at Friday’s low (a positive sign), but the 38% retracement level of the most recent wave is near 3,620, suggesting further downside next week.

The limit for the 4th wave would be the high of the first wave (3,550). Anything further south and the longer-term count needs adjustment. That would also be the point where the signal would flip.

COMMENTARY
So…anything interesting happen in the markets this week?

I feel like I’ve had an entire year’s worth of market-related discussions in the past 5 days.  Unless you’ve been under a rock, you’ve heard something about:

• Retail traders using online message boards (i.e. Reddit & r/Wallstreetbets) to discuss stocks that were being “shorted” by hedge funds (e.g. Gamestop).
• Those retail traders bought large amounts of stock and/or options, driving the stock price higher.
• This forced hedge funds to cover their short positions (e.g. buy more stock and/or options) creating a feedback loop of higher prices (e.g. short/gamma squeezes).

But investors who’ve been around awhile have heard this all before; similar games were played back in 2000:

• Traders used online message boards (i.e. Yahoo message boards) to highlight stocks that were extremely cheap and had very low trading volumes (OTC and “Penny Stocks”).
• Those traders had already accumulated large positions. Uninformed investors then bought massive amounts of stock, driving the stock price higher.
• Those with initial positions would sell into the rally, and then prices would return to their original levels (i.e. pump and dump schemes).

What’s new this time around?  The scale of the activity, thanks in part to:

• A pervasive “versus” mentality
  • Haves vs Have Nots, Protected vs Unprotected, Institutional vs. Retail, Wall St. vs Main St.
• The K-shaped economic recovery (Essential vs Non-essential Businesses)
• Access to leverage (i.e. options, margin, low interest rate debt)
• Access to financial data and information
• Access and usage of social media

Whether or not Gamestop ($GME) should be priced at $1,000, $500, or $0.50 isn’t the point; it’s worth whatever people will pay for it, and that price will change over time.

Price change from trading isn’t limited to Gamestop.  Similar price action occurred last summer in shares of Kodak ($KODK), or during 2018 in shares of Tilray ($TLRY).  Lets not forget the prior or current run in Bitcoin.  It could be in gold or silver at some point.

Many traders and investors will see profits. Many traders and investors will see losses; that’s the nature of speculation.  The size of those changes are all relative to their personal financial situation; your small losses may be huge for me or visa versa.

Of more concern is the potential for a broad shift in asset allocation towards de-risking portfolios. We know that the market is overvalued by almost every measure (see last week’s post). These moves take longer to play out (think a cruise liner turning around), and we’re just along for the ride. Billion dollar losses by hedge funds and market makers tend to cause changes.

Several market commentators have noted that many stocks are besting analyst estimates, then selling off (or at least not rallying).  That’s not the behavior of strong bull markets, and suggests this news is already reflected at current price levels.

Coincidentally, some investors I greatly respect say that the market top is in and we’re going to see a major correction.  We’ll only know if they’re right in hindsight, and even they acknowledge that they’re probably early.  But the fact that they’ve coming out publicly and saying that it’s time to cash out is worth noting.

The stock market has had a good run since November, so don’t be shy about taking some money off the table (e.g. recover your initial investment).  Keep your losses small no matter what.  You can always buy back in if/when price action improves.

Best to Your Week!

Stock Market Outlook entering the Week of January 24th = Uptrend

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

ANALYSIS

The stock market outlook remains in an uptrend and recovered a bit of strength last week.

2021-01-24-SPX Trendline Analysis-Daily

The S&P500, ($SPX) sits in the middle of a rising price channel, maintaining a fairly constant gap to the 50 and 200 day moving averages since November.

The ADX reading is on the rise (a bullish sign), although the absolute value remains below the threshold for strong trends…not surprising considering the narrow price channel in place.

2021-01-24-SPX Elliott Wave Analysis-Daily-Primary1

Elliott Wave remains in an uptrend; the next correction likely takes the S&P back to the 3550-3600 support levels. By the time that happens, I’d guess the support trendline and the 200-day moving average will be near that level as well.

COMMENTARY
Another week, another round of quarterly earnings reports; a little over 20% of the S&P500 to be inexact. Good or bad, market prices are at historical extremes. Check out this chart from John Mauldin, courtesy of Doug Kass:

https://ggc-mauldin-images.s3.amazonaws.com/uploads/newsletters/Image_5_20210122_TFTF.png

That’s not to say prices can’t go higher…just that the hamburgers are expensive, to reference a Buffett euphemism. For me, it means great trading opportunities are ahead, but relatively poor investing opportunities. Be ruthless when pruning your money tree; now is definitely NOT the time to be in love with your holdings (not that there is ever a good time for that).

Best to Your Week!

Stock Market Outlook entering the Week of January 17th = Uptrend

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

ANALYSIS

The stock market outlook remains in an uptrend, albeit a weakening one.

2021-01-17-SPX Trendline Analysis-Daily

The S&P500, ($SPX) closed its gap to the 200-day moving average, but still sits more than 10% above that level. Price found some support at the bottom of a potential channel on Friday.

The ADX continues to show a bullish trend, but that trend has weakened since December. With a reading under the 20-25 range, there isn’t much of a trend to follow anyway. And we picked up two distribution days in succession last week; not enough to change the signal, but not the best price action either.

2021-01-17-SPX Elliott Wave Analysis-Daily-Primary1

Elliott Wave also remains in an uptrend, though some analysts think we may have just completed a minor wave, given the divergence in the RSI and the MACD histogram inflection/cross-over.

COMMENTARY
It’s that start of earnings season, which should make some some interesting price action over the next few weeks.

The incoming Biden administration released a $1.9 trillion fiscal-stimulus plan, and not a moment too soon, as jobless claims are coming in higher than anticipated. Other headwinds include a slower than anticipated vaccine rollout and an increase is COVID cases after the holiday season.

A short week on tap, with U.S. markets closed on Monday in observance of Martin Luther King Day.

Best to Your Week!

Stock Market Outlook entering the Week of January 10th = Uptrend

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

ANALYSIS

The stock market outlook remains in an uptrend.

2021-01-10-SPX Trendline Analysis-Daily

Price remains extended from the 200-day moving average (~14.5%), as it has for the past 9 weeks or so.

But all three signals (ADX, Price / Volume, and Elliott Wave) show an uptrend for the S&P500 ($SPX). The ADX crossed over briefly when the market sold off at the start of the week.

2021-01-10-SPX Elliott Wave Analysis-Daily-Primary1

2021-01-10-SPX Trendline Analysis-Weekly

COMMENTARY
The December jobs reports showed the first monthly loss since April, resulting from new lockdowns and restrictions from the holiday surge in new coronavirus cases. Democrats won the Georgia runoff elections, leaving the party in control of the White House and Congress.

I, along with many others, am still processing the other debacle we witnessed last week. While the impact of the event on markets was minimal, a deep political divide still exists within the U.S.. So there will likely be more unrest (as we saw throughout 2020) as we work through it. But work through it we will.

Best to Your Week!

Stock Market Outlook entering the Week of January 3rd = Uptrend

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

ANALYSIS

The stock market outlook starts 2021 in an uptrend.

All three signals (ADX, Price / Volume, and Elliott Wave) show an uptrend for the S&P500 ($SPX).

Happy New Year and Best to Your 2021!

Stock Market Outlook entering the Week of December 27th = Uptrend

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

ANALYSIS

The stock market outlook remains in an uptrend heading into the last few days of 2020.

2020-12-27-SPX Trendline Analysis-Daily

All three signals (ADX, Price / Volume, and Elliott Wave) show an uptrend in place for the S&P500 ($SPX), though the uptrend did appear to weaken last week. The ADX almost crossed over, we’ve collected a moderate number of distribution days, and price is still extended from the 200-day moving average (~13%).

COMMENTARY

The U.S. congress passed a relief bill, which now sits in limbo as it awaits the President’s signature (or veto). And a Brexit deal was reached. Vaccinations continue to increase and provide confidence in a return to normalcy, but a new variant of the virus resulted in U.K. travel bans and infections continue to accelerate.

Another shortened trading week on tap, with the U.S. markets closed on Friday on New Years Day.

Best to Your Week!