The stock market outlook switches to a downtrend to start the week. The ADX signal was joined by the price/volume signal in bearish territory, while Elliott Wave isn't too far away from a switch either.
2020-09-20-SPX Trendline Analysis - Daily
The S&P500 ($SPX) is still ~7% away from the 200-day moving average. More concerning was Friday's drop below the 50-day moving average on higher than average trading volume.
The ADX flip flopped again last week, and again starts the current week showing a bearish environment. A couple of heavily selling days and a drop below the 50-day landed the price/volume signal in downtrend territory, as mentioned in last week's post.
Friday was a quadruple witching day, so option expiration skewed price movements somewhat. Still, it's better to protect your capital; be safe not sorry. Look for a rebound from the 50-day on strong volume to confirm that the correction is complete.
2020-09-20-SPX Elliott Wave Analysis - Daily - Intermediate C
For the Elliott Wave signal, price only fell to 3292, so the current count remains in place. If the S&P falls below 3279, then the count will need to be adjusted and this signal will likely flips to a downtrend as well. Otherwise, we should start the 5th wave shortly and head higher.
In Europe, we could be seeing the start of a second coronavirus wave.
If you've been trading this uptrend and recently entered positions, remember to keep your losses small and sell if your 7-8% below your buy price. The big tech names that were driving the indexes higher are near their 50-day moving averages, so don't fight the market. You can always buy back in when and if prices recover.
When planning your trades, keep in mind that September isn't great for stocks historically, and we typically see a sell off during the second half of the month.
Source: Brent Donnelly via John Mauldin
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:
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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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