2021-03-07-SPX Trendline Analysis - Daily
More selling for the S&P500 ($SPX) last week. Prices dropped below the 50-day moving average on Thursday on higher trading volume, then rallied on Friday to close just north of that level.
The ADX shows a weak trend overall (reading below 20), but one that is strengthening with bearish price action; similar to late October 2020.
We added a few more distribution days last week, and since prices fell through the 50-day moving average, the price & volume signal shifts to a downtrend. The good news is that Friday’s strong rally is the first day of a new rally attempt. Be on the lookout for high-volume trading days. A follow-through day (>1.5% gain on higher than average volume) between March 10th and March 22nd) would confirm a new rally, while additional distribution days would confirm a longer correction.
2021-03-07-SPX Elliott Wave Analysis - Daily - Primary 1
Elliott Wave shows a downtrend as well. At the moment, it looks like the Minute 4 wave of a Minor 3 wave. If this is true, then I’d expect some further upside Monday, followed quickly by another leg down to complete the Minor 3 (somewhere just below 3700).
Until the S&P breaches 3700, there’s still hope for a more "bullish alternative" (that we haven't completed the 5th wave yet, and prices will take another run at new highs before we see a "real" correction). The downtrends since the pandemic started have been ~3 weeks. So just as we mentioned the wave completing after 1.5 weeks, this downtrend should be nearly over as well…if symmetry continues to hold.
As expected, the focus on interest rates sent high-tech stocks plunging, and we're seeing the latest round of sector rotation. Investors looking for growth are feeling the pain, like the those who invested in ARK funds. Meanwhile, income and dividend plays held up fairly well, as did commodities.
Best to Your Week!
P.S. The 2020 Annual Performance Report is out; check it out here:
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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