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  3. Stock Market Outlook - 2021-02-07

Stock Market Outlook
For The Week Of February 7th = Uptrend

INDICATORS

    ADX Directional Indicators: Uptrend
    Price & Volume Action: Uptrend
    Elliott Wave Analysis: Uptrend

ANALYSIS

The stock market outlook shows an uptrend, as stocks fought back against recent bearishness.

Technical analysis of daily SPX prices

2021-02-07-SPX Trendline Analysis - Daily

The S&P500 ($SPX) bounced off its 50-day moving average and ended the week at an all time high. The ADX still shows a weak trend in place, but the directional indicators flipped to bullish on Friday (just barely). The price/volume signal shifted back to an uptrend thanks to Monday’s bounce and no new distribution days.

A look under the hood, and there is still cause for concern:

  • The index sits ~15% above the 200-day
  • Trading volume was below average all week
  • Trading volume declined as prices rose

Even though there's an uptrend in place, keep watch. Prices take the stairs up and the elevator down.

Technical analysis of daily SPX prices

2021-02-07-SPX Elliott Wave Analysis - Daily - Primary 1

For Elliott Wave, the positive RSI divergence mentioned last week did indeed signal the end of the correction, which on a bit on the small side (only reaching the ~24% retracement level rather than the 38%). The long-term view continues to show substantial negative divergences in RSI and the MACD.

COMMENTARY

We got January's unemployment report, which showed a decrease from 6.7% to 6.3%. All is well, right?

Again, take a look under the hood. The U.S. saw an increase of 49k was about half of what was expected. And job losses in December were revised upward by 62%! The unemployment rate fell because labor-force participation declined.

But all is not lost. More than likely, this information bolsters the case for more fiscal stimulus, which will have a positive effect on the stock market. Infection rates are improving, as is vaccine distribution, so economic activity is likely to improve as well.

Coincidentally, some investors I greatly respect say that the market top is in and we're going to see a major correction. We'll only know if they're right in hindsight, and even they acknowledge that they're probably early. But the fact that they've coming out publicly and saying that it's time to cash out is worth noting.

The stock market has had a good run since November, so don't be shy about taking some money off the table (e.g. recover your initial investment). Keep your losses small no matter what. You can always buy back in if/when price action improves.

Best to Your Week!

P.S. Head on over to Epsilon Theory, read their take on the "Reddit Revolt", and let me know what you think.

https://www.epsilontheory.com/hunger-games/


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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.


Charts provided courtesy of stockcharts.com.

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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