ADX Directional Indicators: Uptrend
Price & Volume Action: Uptrend
Elliott Wave Analysis: Downtrend
The stock market outlook remains in an uptrend to start off June. The ADX and price/volume are both in an uptrend, and Elliott Wave showing a "downtrend".
2020-05-31-SPX Trendline Analysis - Daily
The S&P500 ($SPX) sits just about 10% above the 50-day moving average, and just abaove the 200 day moving average. The ADX is still showing a weak trend, but we have seen several days of accumulation recently.
2020-05-31-SPX Elliott Wave Analysis - Daily
Elliott Wave shows the S&P500 remains in a corrective pattern (an expanded flat), with the May low as Minor A. Targets for completing Minor B were between 2999 and 3017, and the S&P hit 3068 on Thursday (shown below). If this is the case, targets for Minor C would be between 1.618 of Minor A and 1.618 of Minor B...both of which happen to be 2580.
2020-05-31-SPX Elliott Wave Analysis - Daily - Minor B
Of course, we can't predict what the stock market will do; a price above 3071 this week and we'll need to adjust the pattern and targets. It's also possible for a double of triple three pattern to emerge, which would stretch out the Intermediate B wave over the summer.
Stocks performed well last week. The European Commission proposed a €750 billion recovery fund..it still needs to be approved by all EU members, which is no small task. Closer to home, U.S. GDP is forecast to decline ~40% in the second quarter (on an annual basis). That's the largest quarterly decline since the Great Depression!
In Steve Blumenthal's "Trade Signals / On My Radar" post this week, he summarized Lacy Hunt's presentation from the Strategic Investment Conference. I found the insights on stimulus spending interesting.
Basically, all the stimulus (aka debt) that we’ve taken on is merely for survival, not for productive uses. It's an attempt to fill the gap in production while the economy was shut down. As our economies reopen, we'll have to see how much of that gap we can fill without help from the Fed.
And filling that gap is not guaranteed. Consumer spending accounts for almost 66% of economic growth in the U.S. So any recovery will be linked to "healthy" consumers (financially, physically, and behaviorally).
All these questions must be answered for Wall Street and Main Street to discover the new "normal". This week's step in that journey is the May jobs report, which comes out Friday!
Steve followed that up with some truly amazing stats on S&P500 performance. Since 12-31-2014, the market capitalized performance of S&P stocks is as follows:
Based on those percentages, if you invested $10,000 in at that time, today you'd have:
Steve goes on to say:
This is another reason that the "stock market" seems disconnected from all the chaos that we read in the news. As long as FANMAG stocks perform well, under performance in other areas is muted. On the flip side, selling in these names will also have a disproportionate effect on S&P500 performance. Something to keep in mind as you evaluate your holdings.
Best to your week!
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:
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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