Weekend Stock Market Outlook
Stock Market Outlook For The Week of
March 1st = Downtrend
ADX Directional Indicators: Downtrend
Price & Volume Action: Downtrend
Objective Elliott Wave Analysis: Downtrend
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.
2020-03-01 - SPX Trendline Analysis - Daily
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.
2020-03-01 - SPX Trendline Analysis - Weekly
OEW made some major changes to the labeling of their waves; either way, the S&P is in a correction.
When there is an exogenous shock and the markets are gripped by uncertainty, fear takes over and people don't act rationally. Here's what we discussed in the last few posts:
Feb 2 - The longer we're in a downtrend, the more mispricing occurs. That means that companies with solid financials and good long term prospects will see their shares sold along side companies with weak financials and poor long term prospects [ed. - especially if your practicing passive investing an holding index funds]. People will throw the baby out with the bathwater.
Feb 16 - News media is finally admitting there will be an economic impact from the coronavirus in China. As we discussed, it's not a matter of if...it's a matter of how long and how much. Until companies actually report their numbers this summer and fall, we won't know for sure, so watch prices!
Feb 23 - Keep in mind that prices tend to take the stairs up, but take the elevator down! So watch out for high volume selling this week, especially if the 50-day moving average doesn't hold.
Baby meet bathwater. Even gold sold off last week. Some commentators speculate that people had to liquidate positions to cover their margin calls.
This type of mispricing, since it was so severe, is usually seen as a buying opportunity. If we look back to the last two times this has happened on the weekly chart, we see that the following week closed higher. Governments could flood the market with liquidity, or outright buy equities, and drive a recovery.
Take a look at closed-end funds; they got hammered, and usually recover well after an event like this. Income investors are likely salivating over the possibility to pick up some dividend kings on the cheap. Sadly, even with all the sell, the average P/E is STILL pretty high. If you do decide to test the waters, consider adjusting your position sizes and dollar cost average.
But as you know, past performance doesn't mean future results. A rally could be a chance to rebalance your portfolio, take some profits, or just prune some positions before another next wave of selling hits the market.
At this point, I think we've just seen the first repricing due to China shutting down over their New Year Holiday. Maybe we rally back above the 200-day early this month, maybe not. There will be a lot of companies with little to no revenue for February. and if the virus spreads further or cases increase when the travel bans are lifted, the market likely sells off again. So I think we see a short recovery, and then another leg down when Q1 earnings are reported.
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.
Best to your week!
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Charts provided courtesy of stockcharts.com.
If you're interested in learning more about the relationship between price and volume, or how to find and trade the best stocks for your growth strategy, check out this book on Amazon via the following affiliate link: How to Make Money in Stocks: A Winning System in Good Times and Bad. It's one of my favorites.
For the detailed Elliott Wave Analysis, go to the ELLIOTT WAVE lives on by Tony Caldaro.
Once a year, I review the market outlook signals as if they were a mechanical trading system, while pointing out issues and making adjustments. The goal is to give you to give you an example of how to analyze and continuously improve your own systems.
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