A New Rally Beginning?
Hello everyone,
This is week 12 of ∞ that I will be posting a written version of my stock market outlook.
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Last Week’s Action
Last week, the market held the key level and then moved higher, potentially forming a higher low
We are back above a rising 5 sma, 50 sma, just below a declining 21ema, and below a declining 200 sma
Daily chart of the QQQ:
We remain in a long-term negative market, however the short term trend has improved.
The weekly and monthly charts show the bigger picture
We closed just below last week’s high.
Monthly:
The McClellan Oscillator has risen sharply back to a neutral range.
The T2108 - the % of stocks on the NYSE above their 40-day SMAs is back to 46%
Leadership
In terms of leadership themes I am focused on these:
Solar
Healthcare/Biotech
IPOs
Sentiment
We saw a big jump in my twitter survey, likely due to the strong close on friday
The NAAIM dropped below 30 last wednesday
The Put call ratio is just below 1
IBD is currently at an uptrend under pressure. Distribution days are high
Stock Market Outlook
The short-term trend has improved quite a bit. In addition, we saw many breakouts hold into the end of the week.
However, the longer-term trend remains down and we remain below a declining 21 ema.
It would be constructive to have a week of sideways action or even a slight pullback on lighter volume. That would set up many charts. Then after that, I would like to see us get solidly above an increasing 50 sma.
Take it day by day and manage risk along the way.
What To Look For (Same game plan as the last few weeks)
When it is time for a new bull market we will see divergences as groups decouple from the indexes and show relative strength. Setups will proliferate your screens.
When the market is ready it will be obvious, and it may happen when the news and sentiment is the absolute worst.
The leaders in the next bull market will once again have the potential to quickly double and triple and they will likely be completely new names that are unfamiliar. Try not to become biased and focused on last cycle’s winners.
Follow the sector, industry group strength, and look for the strongest stocks coming out of these strongest areas. As the market bottoms these future winners will likely be completing bases and may even be making new 52-week or all-time highs.
Keep an eye out for turnaround plays with excellent earnings and sales growth as well as recent IPOs within the past 2 years forming out their first proper bases.
Have patience, preserve your mental and financial capital, and be ready. Stocks can shape up faster than we think.
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Have a great weekend!
Richard