The rising trendline bit the dust, and the index is still looking for support from the 50-day moving average. Yet in spite of last week's performance, the ($SPX) still sits less than 5% from an all time high.
2021-12-05-SPX Trendline Analysis - Daily
As far as the signals are concerned, there's no change from last week. The ADX directional indicators remain bearish.
The price/volume signal continues to show an uptrend, with the distribution day count slightly elevated and price at the 50-day. That's not to say it's currently a strong signal, because trading volume around the 50-day definitely skewed to the downside. A close below the low's of last week would change this signal to bearish and the outlook to a downtrend.
2021-12-05-SPX Elliott Wave Analysis - Daily - Primary 1
Elliott Wave shows the Minor 2 corrective wave in play. As mentioned last week, a 2nd wave typically hits the 61.8% Fibonacci retracement level of the first wave, or 4,455 on the SPX.
Friday’s trading session low was 4,495, which is greater than the 50% Fibonacci retracement level. The low also came with positive divergences for the RSI and MACD histogram, so I'm looking for the start of a 3rd wave to the upside.
That doesn't mean we can't or won't go lower from here. A close below 4,278 would negate the current count, and put this signal into a downtrend.
Volatility ramped up last week, with the VIX jumping into the mid-30's and the S&P500 oscillating more than 1% each day. As far as the cause, you can pick your narrative:
What matters is impact, and while there weren't many places to hide from the selling, the size of losses varied greatly. If you were long small caps, commodities, or crypto; ouch. If you were long gold or industrial's; not too bad.
Given the level of uncertainty investors face, do be surprised if the markets remain volatile. Asset and sector allocation will be key, as it's likely that institutions will look to maximize Q4 performance and end the year strong. In other words, a "buy the dip opportunity" exists, but keep your stops tight in case you're looking in the wrong place!
Best to Your Week!
Charts provided courtesy of stockcharts.com.
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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