2021-04-25-SPX Trendline Analysis - Daily
A choppy week for the S&P500 ($SPX). We actually saw a small increase in volatility! Since the corrections over the past year have been ~5%, even a small amount of volatility can seem dramatic. But when all was said and done, not much change from last week's starting point.
We start this week in basically the same position as last week: the index trading ~5% above the 50-day, roughly same distance to the lower trendline.
The ADX shows a strong bullish trend. A few more distribution days fell off the count, but a pair of distribution days popped up and took their place. The overall count is low, so nothing to be concerned about yet.
2021-04-25-SPX Elliott Wave Analysis - Daily - Primary 1
For Elliott Wave, it’s possible that the 3rd wave ended on the 16th, and the 4th wave completed last week, which would put the S&P into the 5th wave. The 4th wave could also drag on for a bit more.
Unlike the ADX and price/volume, EW is indicating there’s weakness underneath the price action last week, with the MACD joining the RSI in showing a negative divergence. This type of price action usually occurs during 5th waves (i.e. the end of an uptrend).
If the count is correct, that would mean the end of the Primary 1 wave…or the rally that started at the February low in 2020.
In either case, it’s time to start taking profits and/or right-sizing your allocations. The S&P gained a little more than 10% since the March low, and will likely give back half of that before the signals change.
The Biden administration got traders and investors hyperventilating last week, after proposing increased tax rates. The proposal included:
The news shouldn't have surprised anyone, but markets gonna market. Biden campaigned on increasing taxes on the wealthy, and is making good on that promise. Regardless of party affiliation, tax increases are inevitable. All the stimulus flooding the economy will be paid for by someone. And by someone, I mean tax payers. The only difference is how the debt collection will be spread around...which tax rates increase and by how much.
There are still plenty of fundamental reasons to be bullish in the near-term; an infrastructure bill in the works (more stimulus), low interest rates (lower debt repayment), and global vaccine rollouts (consumer spending). Earnings season rolls on, and most companies have reported better than expected results. Again, not surprising given the comparison's are based on the disaster that was Q2 2020.
Best to Your Week!
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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