Last week capped another volatile week for the ($SPX); this time to the upside. The index rallied off the 50-day moving average and now sits ~3% above that level.
2021-12-12-SPX Trendline Analysis - Daily
I called last week a make or break week for the market, and the investors chose "make", so I was a bit premature putting the trendline out to pasture.
The ADX directional indicators flipped back to bullish last Tuesday. The price/volume signal dropped last week’s asterisk from it’s uptrend signal.
2021-12-12-SPX Elliott Wave Analysis - Daily - Primary 1
For Elliott Wave, the December 3rd low of 4495 looks to be the end of Minor Wave 2 and the recent correction. That wave didn’t quite make it to the 61.8% Fibonacci level, but did pass the typical minimum of a 50% retracement.
It’s still possible for the December 3rd low to be first part of a larger Minor Wave 2 correction; the A-wave of an ABC zigzag pattern, similar to the one from late September. For now, the count puts the S&P into the first wave of a Minor Wave 3.
As expected, inflation came in hot for November (CPI at 6.8%). Anyone who's buying pretty much anything knows that prices have increased this year.
While the monthly jobs report may have overwhelmed, the overall unemployment rate is below 5%, so you've probably noticed that discussion getting less and less airtime. Instead, be prepared for a breathless discussion of tapering and interest rates this week, ahead of the Dec 15 & 16 Fed meeting.
As far as your investing process is concerning, tapering means removing liquidity from financial markets, and less liquidity means higher volatility. Higher volatility means larger price swings, which impacts your entry and exit signals.
Rising rates change the valuation of future cashflows, which changes financial estimates for all sorts of fundamental analysis. And changes to underlying financials will impact sector performance, as well as your overall asset allocation strategy.
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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