Bulls Are On Their Own
From my seat, the primary driving factors behind the stock market action continue to be (a) the state of the economic recovery, (b) the outlook for additional stimulus, and (c) the outlook on the COVID crisis. On the latter subject, the key seems to be the question of when we can return to "normal" in terms of social distancing, mask-wearing, etc. Because, in short, until people can gather indoors without the fear of becoming sick, the economy will not return to where it stood at the beginning of 2020. While hardly breaking news, I believe this continues to be the focal point of the stock market.
From an "Early Warning" standpoint, it looks as if the major indices now find themselves in no-man's land. Stocks are neither oversold nor overbought from a near-term perspective and sentiment doesn't really favor either team. As such, neither team looks like they have an edge here.
The good news on this fine Wednesday morning is the headline that Treasury Secretary Mnuchin says a compromise on stimulus is possible. This has lifted stock prices in the early going on the idea that stimulus will help limit the ultimate damage COVID inflicts on the economy. So, for now, it looks like the bulls have the ball.
Next, let's take a look at our Early Warning board for additional clues about the near-term action...
The State of the "Early Warning" Indicators
The Early Warning board has slipped a bit over the last week. While there wasn't a table-pounding set-up seen at this time a week ago, the board did seem to favor the bulls to a slight degree. This week, the board is more neutral, which suggests that the team currently in possession of the ball is likely to keep it for a while as there isn't a strong case for a mean-reversion move here.
* Source: Ned Davis Research (NDR) as of the date of publication. Historical returns are hypothetical average annual performances calculated by NDR. Past performances do not guarantee future results or profitability - NOT INDIVIDUAL INVESTMENT ADVICE.
Stochastic Review
As you can see on the chart below, the recent buy signal from the stochastics appeared to be well-timed. However, with the stochastics quickly moving up into the neutral zone, the mean-reversion tailwinds have stopped blowing. As such, the bulls are now on their own and will need to generate some momentum if they hope to move prices much higher from here. So, as I mentioned above, from an "early warning" perspective, things are pretty darn neutral here. For me, this means it is time to lean on the trend and momentum indicators until the next "early warning" setup appears.
S&P 500 - Daily
(Click on image to enlarge)
The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should ...
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