Basically a carbon copy of last week’s stock market outlook; no change in the signals and price action remained bullish.
2020-08-09-SPX Trendline Analysis - Daily
The S&P500 ($SPX) support trendline, remains in place, and isn't overly extended from the 50 & 200 day moving averages.
The Elliott Wave count, if correct, shows a correction should start any day now. The negative divergence in the RSI remains in place verses the highs in June and July (not by much though)...common for the end of a 5th wave.
That said, in order for the current count to be correct, the Minor 5 wave needs to end before it exceeds the February high (3393). Heading into the week, the S&P is just 42 points shy of that level. Not exactly a risk-on scenario.
2020-08-09-SPX Elliott Wave Analysis - Daily - Intermediate A
Of course, the count could be wrong, which is why I don’t use just one signal. Downside risk is roughly 6%; that’s how far the S&P500 would need to fall before breaking the 50-day moving average and generating a sell signal in the other indicators.
U.S. employment figures were released last week, beating estimates for hiring in July.
Despite the positive headlines, underlying data isn't great. There are still a lot of people that aren't getting paid what they did a few months ago. The longer that situation persists, the larger the impact on consumption, and therefore the economy.
70+% of our economy is based on consumption, so while the stimulus checks help people stay afloat, they won't necessary improve the economic recovery. Does the stimulus check get saved, get invested, or go towards paying down debt? If yes, then it's impact is limited.
That's not to say the stock market can't continue to climb. All that liquidity from the various central banks has to go somewhere! Talking heads justify current prices by saying that "the market" is now looking past near term earnings (since they will be bad) and focusing on expected earnings in 2021 or 2022 (even though firms aren't providing guidance out that far). Since the situation will eventually get better (people get back to work, find similar paying jobs, etc.), there's no need to reprice.
It's like a wink and a nod that we'll all pretend everything is okay...which is great as along as everyone keeps pretending! It's the prisoner's dilemma at work.
Best to your week!
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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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