Weekend Stock Market Outlook

Stock Market Outlook For The Week of
March 15th = Downtrend

INDICATORS

ADX Directional Indicators: Downtrend
Price & Volume Action: Downtrend
Objective 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!



If you find this research helpful, please tell a friend. If you don't find it helpful, tell an enemy. I share articles and other news of interest via Twitter; you can follow me @investsafely. The weekly market outlook is also posted on Facebook and Linkedin.

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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The S&P 500 Composite Total Return Index (the "S&P") is a market capitalization-weighted index of 500 widely held stocks often used as a proxy for the stock market. Standard & Poor's chooses the member companies for the S&P based on market size, liquidity, and industry group representation. Included are the common stocks of industrial, financial, utility, and transportation companies. The S&P is not an index into which an investor can directly invest. The historical S&P performance results (and those of all other indices) are provided exclusively for comparison purposes only, so as to provide general comparative information to assist an individual in determining whether the performance of a specific portfolio or model meets, or continues to meet investment objective(s). The model and indices performance results do not reflect the impact of taxes.

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