2021-02-21-SPX Trendline Analysis - Daily
The S&P500 ($SPX) sold off a bit last week, retreating from all time high's. It remains extended from support levels, so further selling is a possibility.
The ADX continues to show a weak trend getting weaker (it's approaching a reading of 10 now). The Directional Indicators crossed over briefly last week, but are essentially equal to start things off this week. Two distribution days were added to the count, but two also fell off, so the price/volume signal remains unchanged.
2021-02-21-SPX Elliott Wave Analysis - Daily - Primary 1
For Elliott Wave, the 5th wave is looking for support at the 13-day moving average. During the 3rd wave (November to late January), the RSI didn’t fall much below 50. If that trend continues, so should the 5th wave. A move below 3870 indicates the 5th wave is probably complete and a larger decline is on the way.
While the media's eyes and ears were focused on Congressional hearings related to recent short-squeezes, investors focused on the bond market; specifically the rapid rise in long-term interest rates. The rate isn't that high, relatively speaking (1.3% is basically back to pre-pandemic levels, which is historically low to begin with). It's the rapid rise that's an issue (doubled since September).
The U.S. has experienced rapid increases before, so it's not unprecedented. But it signals a shift in mindset; bond traders are expecting higher inflation. That's not surprising, given the Fed would like to keep short-term interest rates low until there IS a sustained level of inflation. Add to that the expectation of a large fiscal aid package, and what's actually surprising is that it took this long for those expectations to impact rates!
A shift in longer-term rates may shift some money around, but it shouldn't derail the stock market entirely. If the Fed starts to move short-term rates to counter inflation, then we could see some fireworks.
Best to Your Week!
P.S. The 2020 Annual Performance Report should've been out last week; it'll be out later this 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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