The Safe Investing Blog

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.

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.

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.

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.

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.

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!