Weekend Stock Market Outlook

Stock Market Outlook entering the Week of March 29th = Downtrend

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

COMMENTARY
The stock market outlook remains in a downtrend; no change in the ADX, price/volume, or Elliott Wave.

The ADX directional indicators narrowed last week on a near-term bottom in price. Another week like that and we could see an uptrend signal. The same goes for price/volume. For Elliott Wave, I’ve seen bullish and bearish counts mixed with bull and bear market calls. Bulls say the bottom is in, the recession is priced in, and this rally leads back to new highs. Bears say the rally is bull trap, short-covering, etc. before the next sell-off begins.

Technical analysis of daily SPX prices

2020-03-29 – SPX Trendline Analysis – Daily

Technically speaking, the S&P500 ($SPX) sits ~16% below the 50 and 200 day moving average, which are about to cross-over.  First things first, the S&P will need to break through the current downward trendline. The index also put in a potential rally start on Tuesday, so we’ll be looking for a follow-through day starting this week. That said, severe market corrections like this one aren’t kind to the first rally attempt; most fail.

Longer term, you can see how far and fast prices fell, and where we are in relation to the 2016 low.

Technical analysis of weekly SPX prices

2020-03-29 – SPX Trendline Analysis – Weekly

From an economic standpoint, last week was extraordinary.

  • The Fed, in coordination with the U.S. treasury, announced several programs to ensure liquidity for investors, employers, consumers, businesses and governments.
  • The US government (finally) agreed to a $2 trillion stimulus package, including the fabled helicopter money that was discussed back in 2008.
  • Initial jobless report came in at 3.3 million new unemployment claims! Before last week, 700,000 was the highest weekly total in history.

And through it all, U.S. stocks saw their best week in 11 years, posting back-to-back up days for the first time in over a month! We were overdue for a rally of some kind…after such a steep correction, every kind of investor, big or small, needed to make adjustments.

But before we get carried away, remember that stocks are essentially “fair value” right now. We’re about 25% below the February peak, and stock prices are basically “even” from a valuation perspective. It’s from that starting point that we head into earnings season. And some firms are already withdrawing their earnings guidance for the year, making it even hard to figure out the right price going forward. Wall street analysts will do their best, but at this point, we’re all just speculators.

In my opinion, the bottom is NOT in. I don’t know how long or how high the rally will go.  I do know that people are being hit in paycheck, whether that’s from lay-offs, reduced hours, pay cuts, or even super low interest rates, bond yields, and dividend cuts. Quarantines, shutdowns, shelter in place, and social distancing measures are changing spending habits, at least in the near term. We’ll see more businesses close their doors; some temporarily, others for good. Unemployment will continue to climb, as well as the number of people fighting through the virus. All these things will impact valuation for at least the next 2 quarters, if not longer.

Despite the political games, I’m encouraged by the steps taken last week. To summarize, in the U.S., the government has created a giant cushion for the economy to land on. Some people have parachutes and are not concerned. Some will land in the middle, some will land on the edges, and some will miss it entirely. How quickly we get back on the mend depends on how quickly we can help those who weren’t cushioned well.

So…as far as safe investing goes: income stocks are starting to look attractive by several measures, so update your watch list and watch those buy points.  For growth stocks, it’s been 6 weeks since the sell-off began, and that’s the minimum for building a proper price pattern.  Expect volatility to continue; I’ve seen some stocks fall past my theoretical stops (7-8%) in a day. Swing trading or momentum indicators are probably your best bet.

Someone asked me what the world will look like when this is all over.  I told her that I didn’t know what it will look like, but surely “cobra chickens” will have taken over.

Canada Goose – Courtesy of Wikipedia

Hats off and a big thank you to the brave men and women putting their health at risk in essential positions to keep the rest of us safe and healthy during this crisis.

Best to your week!

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Weekend Stock Market Outlook

Stock Market Outlook entering the Week of March 22nd = Downtrend

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

COMMENTARY
Carbon copy of last week; the stock market outlook remains in a downtrend; no change in the ADX, price/volume, or Elliott Wave.

Technical analysis of daily SPX prices

2020-03-22 – SPX Trendline Analysis – Daily

The S&P500 ($SPX) charts show we’re way below the moving averages and the trendlines, but that doesn’t mean we can’t go lower.

Given the speed and size of the decline, we need to expand the timing for our weekly charts.  You can see the S&P has retraced all the gains from 2019.  There are some former lows near 2100 and 2000 that could provide support.  Otherwise, the 2016 low at 1810 is next major level.

Technical analysis of weekly SPX prices

2020-03-22 – SPX Trendline Analysis – Weekly

And if we go even further back, we can see the latest price move in relation to the end of the Great Recession, along with some trendlines and Fibonacci levels.

2020-03-22 – SPX Trendline Analysis – Annual

Lots of aid packages were announced last week.  The U.S. is pushing for $1.2 trillion in stimulus, the EU is working on $1 trillion in new fiscal spending, and the Fed U.S. rates by a 1% and restarted its bond-buying program.  These programs will soften the impact from shutdowns and social distancing.  But there will still be an impact.  Layoffs (full and temporary) are starting, and will continue to grow.

Stock are no longer overvalued.  While I personally don’t think the selling is over just yet, there is and will be opportunity to purchase great companies at a discount soon.

If you do decide to put some money to work, consider some form of downside protection.  That could be options, smaller position sizes, tighter stop loss orders.  Now, more than ever, it’s critical to know how much you’re willing to lose before exiting a trade.  And yes, that even applies to buy and hold; there is a real risk of bankruptcies and restructuring, which could render your shares worthless.  Just ask people who owned GM shares back in 2007.

The news will sound dire, especially in the U.S. since our testing capabilities lagged the outbreak.  Social media will be worse, so practice social distancing from those things too. There are many, many talented people the world over working on solutions in just about every part of our economy.  Each day we get closer to the back side of this crisis.

Check on your neighbors and friends.  Even the most introverted of us are having to change our routines.  Combined with threats to our basic needs (food, shelter, water) and forced isolation, I’m sure they’ll be glad to hear from you.

For those of you working in our hospitals, urgent care centers, doctor’s offices, thank you.

For those of you working in our grocery stores and food supply chains, thank you.

Best to your week!

P.S. This weeks On My Radar from Steve Blumenthal is excellent.  Take a moment to give it a read.

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Weekend Stock Market Outlook

Stock Market Outlook entering the Week of March 15th = Downtrend

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

COMMENTARY
The stock market outlook remains in a downtrend; no change in the ADX, price/volume, or Elliott Wave.  Uncertainty still rules the day, and will continue to do so for the next few weeks at a minimum.

Support and resistance levels are coming fast and furious these days. I figured we had a few days before the S&P would test the 2750 support target identified in last week’s update. Instead, the S&P tested that level on Monday after falling more than 7%! Unless your a trader, it’s going to be hard to capture these moves.

The volatility reminds me of the late 2000s, but it’s definitely not the same. 9% price moves are just crazy, not to mention a week of 5% or greater moves…in an index of 500 companies!

Sudden price moves like we’ve witnessed over the past two weeks tend to catch traders off guard, and there’s been speculation that certain funds have “blown up”.  That’s a technical term meaning they’ve had to sell all their holdings at whatever price they can get to cover margin calls, etc. Anecdotal evidence comes from the recent poor performance of assets like gold or silver (even bitcoin!).  All are considered “save havens” in times of crisis, but they’ve sold off with stocks.

Technical analysis of daily SPX prices

2020-03-15 – SPX Trendline Analysis – Daily

The S&P500 ($SPX) chart shows what you’d expect; massive price movement and high trading volumes.  It’s going to take some time to work those distribution days off the count.  Individual stocks will likely signal an potential uptrend before any of the indexes turn around.

I’ve been reviewing the current OEW wave count, and although I’m no expert, the graphs just don’t seem to be aligned with the current market environment.  The counts are definitely “possible”, because they don’t violate any rules.  But the future implications of their current analysis doesn’t seem plausible, given the speed and depth of the current sell-off and the likely impact of a demand shock on the economy.

Tony always said trade what’s in front of you.  So I’m providing a first go what’s in front of me, as an alternate count for those who are interested.  I’m sure my labeling is off; I’m still playing with the intermediate waves within the Major 5 in 2019.  Work in progress, but if correct, it corresponds with a bear market for stocks.

Technical analysis of weekly SPX prices

2020-03-15 – SPX Trendline Analysis – Weekly

As if we needed more black swans flying around, OPEC and Russia decided to enter a price war over oil.  For those of you that are counting, that’s:

  • A supply shock in global supply chains, resulting from the shutdown of Chinese factories in response to the COVID-19 outbreak
  • A demand shock from a drop in Chinese consumption, resulting from the lockdown of a majority of the Chinese population during their New Year’s Festival, in an attempt to contain the COVID-19 epidemic
  • A developing supply shock to oil markets, resulting from a price war between OPEC and Russia
  • A developing demand shock from a drop in global consumption, resulting from travel bans, quarantines, lockdowns, and “social distancing” measures enacted across the globe in response to the COVID-19 pandemic

As we’ve discussed, fundamentals aren’t going to help you in times like this, because the shocks have to work their way through supply and value chains.  We’ll know more when firms start to report first quarter earnings in April.  By July, the uncertainty around the demand and supply shocks should subside, and we’ll know how much earnings have been impacted and whether a recession has taken hold.  Until then, markets will continue to react to every headline, so expect high volatility to continue.

In the meantime, federal and state governments are working on fiscal support for sick/laid-off workers and impacted sectors of the economy to try and soften the blow, but there’s still a high probability that these shocks result in defaults and/or bankruptcies in several sectors of the economy (energy, retail, entertainment).

This week we’ll see policy meetings for at least 10 central banks, including the U.S. Fed.  And moments ago, the Fed announced an emergency stimulus package, cutting interest rates to 0% and starting a $700B asset purchase program.

Best to your week!

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Weekend Stock Market Outlook

Stock Market Outlook entering the Week of March 8th = Downtrend

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

COMMENTARY
The stock market outlook starts off in a downtrend after another wild week of trading.  The ADX, price/volume, and OEW are all indicating a downtrend is in place.

More commentary after the jump…Stock Market Outlook – Week of March 08 2020

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Weekend Stock Market Outlook

Stock Market Outlook entering the Week of March 1st = Downtrend

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

COMMENTARY
After a brutal sell-off, the stock market outlook starts this week in a downtrend. The outlook switched to a downtrend on Monday after the S&P opened below it’s 50-day moving average.

The S&P currently sits below the 200-day moving average, and broke all the trendlines we had been following. Price appears to have found support at the October low. That’s a 100% retracement of the 2019 Q4 advanced, meaning the market gave back all that it gained since October of last year.

Don’t panic; prepare. Jim Cramer likened the current situation (healthcare-wise) to the time before measles had a vaccine. I think that’s a good comparison. They’ll be some bumps along the way, but we’ll get through it.

More commentary after the jump…Stock Market Outlook – Week of March 01 2020

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Don’t single source your news!

As of 12:40, the U.S. stock markets are down more than 3.0%. The CDC has confirmed 53 cases of the coronavirus in the U.S.  Here is a above-the-fold screenshot from the CNN homepage:

CNN Homepage

There is one mention of the Coronavirus, and it’s in the live updates menu…just as many as the “french fry sandwich”.  And there’s nothing about the stock markets.

The Weinstein case is a big deal, but is an analysis of Bernie’s 60 minutes answer really so important that it needs to be front and center?  Really?  It seems like there are more pressing matters to discuss.

To be fair, this page will always be a US-centric view thanks to my IP address. So I checked the “World” page.

CNN World Homepage

Whether or not you “like” CNN is irrelevant; CNN isn’t the issue.  It’s one of many media platforms that people use.  And they all need clicks and eyeballs just like every other website, and they all can be just as narrowly focused.  If you didn’t look elsewhere today, you’d never know the market was selling off, or that the coronavirus continues to spread but the situation in Wuhan is stabilizing.  On the other hand, there are sites that think the world is coming to an end and we should all be in our bunkers.

Check out Reuters:

Reuters Homepage

Admittedly, Reuters is business focused.  But it’s also more balanced in terms of “important” news of the day.

I always preach that you can’t predict, but you can prepare.  Being prepared requires data, and that means you need to do your own research from multiple sources.  Otherwise, you’re subject to what a small group tells you is important, not necessarily what is important to/for you!

 

 

 

Posted in Current Events, Market Trends | Tagged

Weekend Stock Market Outlook

Stock Market Outlook entering the Week of February 23rd = Uptrend

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

COMMENTARY
The stock market outlook starts this week in an uptrend. The ADX directional indicators turned bearish on Friday, but price/volume remains mixed and OEW charts still show an uptrend.

More commentary after the jump…Stock Market Outlook – Week of Week of February 23 2020

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