The Safe Investing Blog

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.

Stock Market Outlook entering the Week of February 14th = Uptrend

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

ANALYSIS
The stock market outlook shows an uptrend, with prices near the upper bound of a former bullish price channel.

2021-02-14-SPX Trendline Analysis-Daily

The S&P500 ($SPX) is within a bullish trading day of 4,000. The ADX shows a weak trend getting weaker.  Price/volume signal remains bullish, and leading high-growth stocks are acting well.  But declining trading volume as price reaches new highs remains a big concern, and suggests a lack of conviction from institutions.

2021-02-14-SPX Elliott Wave Analysis-Daily-Primary1

For Elliott Wave, the 5th wave uptrend rolls on.  If symmetry with the 1st wave is maintained, the current wave should last a few more days before completing.

COMMENTARY
Still risk on…for now. By all typical valuation measures, stocks are extremely overvalued.

Source: Ned Davis Research (Hat Tip to CMG)

Not too surprising…where else are you going to park your money these days?  Even high yield (junk) bonds aren’t going to do it; yields sit at record lows!

Hat Tip to CMG…again

Watch volatility ($VIX).  It’s still elevated when compared to the last few years, but nearing the low point of the since the pandemic sell-off.  I’d expect it to be closer to 12 before we see a major sell-off (>20%), but that doesn’t mean a minor one isn’t in the cards (<20%).

Best to Your Week!

P.S. The 2020 Annual Performance Report should be out later this week.