The S&P500 ($SPX) soared 6.2% last week, breaking through a downward trendline and recapturing the 50-day moving average. The index starts this week just below the 200-day moving average, since the 50 & 200 crossed the week prior.
2022-03-20-SPX Trendline Analysis - Daily
The ADX directional indicators flipped on Friday, so the ADX signal switches to bullish.
Price and volume moves back to an uptrend, after reclaiming the 50-day moving average on massive volume. Granted, that volume came on massive options expiration ($3.5 trillion), but the signal is the signal. This time around, the case for an uptrend was supported by leading stocks breaking out of proper price patterns.
2022-03-20- SPX Elliott Wave Analysis - Daily - Primary 2
For Elliott Wave, last week’s rally broke through resistance at 4415 and invalidates the prior wave count as well as several other potential bearish counts.
After a lot of back and forth, I’m not sure what the count is at the moment. There are bearish counts that show the SPX is "correcting" higher in the overall bear market. There’s a bullish count showing the entire Primary 2 correction is over. It’s possible, but not probable, given the current headwinds facing stocks. The jump in RSI reading shows a shift in price action,and the signal turns to an uptrend heading into this week.
It's not clear if the worst has past or if this is just the eye of the storm, so to speak. Best hypothesis is that we're in the eye of the storm. In terms of Fibonacci levels, a B-wave (if that’s what we’re in) typically retraces 38% to 79% of Wave A. Key levels to watch are 4550-4600 for resistance and 4158 for support.
As mentioned last week and the week prior, the 0.25% rate hike announced by the U.S. Fed was totally expected. The fact that we did not get any surprises (i.e. 0.5% rate hike, more than a hike a meeting) was seen positively by market participants.
Shorter term, ~3.5 trillion dollars worth of options expired last week (weekly, monthly, and quarterly expiration). This is probably the main driver of last week's melt-up in stocks (versus the rate hike or any geopolitical news).
Even though the signal switched to an uptrend, keep an eye on your holdings. If you haven't done so already, use the current strength to your advantage and rebalance your holdings. Q2 earnings season is going to be difficult for many companies, particularly technology-related names.
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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