The Safe Investing Blog

Stock Market Outlook entering the Week of March 7th = Downtrend

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

ANALYSIS
The stock market outlook starts March in a downtrend, on the back of institutional selling.

2021-03-07-SPX Trendline Analysis-Daily

More selling for the S&P500 ($SPX) last week.  Prices dropped below the 50-day moving average on Thursday on higher trading volume, then rallied on Friday to close just north of that level.

The ADX shows a weak trend overall (reading below 20), but one that is strengthening with bearish price action; similar to late October 2020.

We added a few more distribution days last week, and since prices fell through the 50-day moving average, the price & volume signal shifts to a downtrend. The good news is that Friday’s strong rally is the first day of a new rally attempt. Be on the lookout for high-volume trading days.  A follow-through day (>1.5% gain on higher than average volume)  between March 10th  and March 22nd) would confirm a new rally, while additional distribution days would confirm a longer correction.

2021-03-07-SPX Elliott Wave Analysis-Daily-Primary1

Elliott Wave shows a downtrend as well.  At the moment, it looks like the Minute 4 wave of a Minor 3 wave.  If this is true, then I’d expect some further upside Monday, followed quickly by another leg down to complete the Minor 3 (somewhere just below 3700).

Until the S&P breaches 3700, there’s still hope for a more “bullish alternative” (that we haven’t completed the 5th wave yet, and prices will take another run at new highs before we see a “real” correction).  The downtrends since the pandemic started have been ~3 weeks.  So just as we mentioned the wave completing after 1.5 weeks, this downtrend should be nearly over as well…if symmetry continues to hold.

COMMENTARY

As expected, the focus on interest rates sent high-tech stocks plunging, and we’re seeing the latest round of sector rotation.  Investors looking for growth are feeling the pain, like the those who invested in ARK funds.  Meanwhile, income and dividend plays held up fairly well, as did commodities.

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

Stock Market Outlook entering the Week of February 28th = Uptrend

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

ANALYSIS
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.

2021-02-28-SPX Trendline Analysis-Daily

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.

2021-02-28-SPX Elliott Wave Analysis-Daily-Primary1

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.

COMMENTARY

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

Stock Market Outlook entering the Week of February 21st = Uptrend

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

ANALYSIS
The stock market outlook remains in an uptrend, with prices now near the lower bound of a former bullish price channel.

2021-02-21-SPX Trendline Analysis-Daily

The S&P500 ($SPX) sold off a bit last week, retreating from all time high’s.  It remains extended from support levels, so further selling is a possibility.

The ADX continues to show a weak trend getting weaker (it’s approaching a reading of 10 now). The Directional Indicators crossed over briefly last week, but are essentially equal to start things off this week. Two distribution days were added to the count, but two also fell off, so the price/volume signal remains unchanged.

2021-02-21-SPX Elliott Wave Analysis-Daily-Primary1

For Elliott Wave, the 5th wave is looking for support at the 13-day moving average. During the 3rd wave (November to late January), the RSI didn’t fall much below 50.  If that trend continues, so should the 5th wave.  A move below 3870 indicates the 5th wave is probably complete and a larger decline is on the way.

COMMENTARY
While the media’s eyes and ears were focused on Congressional hearings related to recent short-squeezes, investors focused on the bond market; specifically the rapid rise in long-term interest rates. The rate isn’t that high, relatively speaking (1.3% is basically back to pre-pandemic levels, which is historically low to begin with). It’s the rapid rise that’s an issue (doubled since September).

The U.S. has experienced rapid increases before, so it’s not unprecedented. But it signals a shift in mindset; bond traders are expecting higher inflation. That’s not surprising, given the Fed would like to keep short-term interest rates low until there IS a sustained level of inflation. Add to that the expectation of a large fiscal aid package, and what’s actually surprising is that it took this long for those expectations to impact rates!

A shift in longer-term rates may shift some money around, but it shouldn’t derail the stock market entirely. If the Fed starts to move short-term rates to counter inflation, then we could see some fireworks.

Best to Your Week!

P.S. The 2020 Annual Performance Report should’ve been out last week; it’ll be out later this week.