Phases & Cycles Market Outlook – March 04, 2021
For the last 12 months the statistics that all market forecasters and money managers use to measure the strength of the markets and stocks have been misleading. How can that be? One of the most used and cherished technical indicators is the 40-week Moving Average (40wMA). It is used to measure the bullishness/bearishness of stocks, markets, as well as commodities, interest-rates, etc. It is used to smooth prices, to remove the random outliers. Adding up the 40 most recent prices of any of the above assets and then dividing the sum by 40 creates a 40-week Average. Adding today’s price and removing that of 40 weeks ago and doing this week after week, creates a 40-week Moving Average.
On Friday, February 14th, 2020 the S&P500 index (SPX) closed at 3380 and began a five week decline to 2395. We called this decline a “flash crash”. From there on, and for an additional 40 weeks (i.e. till November 20th) this low number was part of the 40-week Moving Average, therefore lowering the value of the Index. In addition, it took 21 weeks for the SPX to move above 3380 once again, which means that for 21 more weeks, that is until April 16th, 2021 the 40wMA will show lower results, therefore show lower support levels for numerous stocks. We have adjusted our calculations accordingly.
Outlook The last two days of February showed a 3.5% decline by the S&P 500 Index, a 4.3% loss by the Nasdaq and Toronto was down by 3.3%. The VIX rose 10 points to 31. Downside Volume (DV) was 3to-1 and 5.5-to-1 larger than Upside Volume (UV) in New York for these two days, while the same statistics for Toronto were 3.3-to-1 and 3.1to-1. Nothing earthshaking, but the bears were stirring. After two days of recovery, where all Indicators recovered their late-February losses, the bears gave it another try and pushed the Indices down 1.5%, 2.8% and 1.0% respectively. The DV/UV statistics were negligible. The VIX was up 4.3 point to 27. Nice try! However, let’s not get complacent. According to the Traders’ Almanac, “March is often prone to weakness in Post-Election years and comes in like a lion and out like a lamb”. We maintain our targets for the SPX at 3600-3700; for the NASDAQ at 12,500-13,000 and for Toronto at 17,000-17,500. This would bring the Indices to below their 50-day, but not below their 200-day Moving Averages.
Our last Market Comment suggested that a “short corrective phase” is imminent, “although probably not until mid-March”. This should give everybody enough time to prepare a small consolidation-plan especially in the FAANG stocks and the Canadian Banks.
PAC-20-198; MKT-501; March 04, 2021
Ron Meisels
Phases & Cycles Inc., 4000 Boul. De Maisonneuve West, Suite 2010, Montreal, QC, H3Z 1J9
Tel.: (514) 393-3653. E-mail: RonMeisels@phases-cycles.com
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This article was prepared by Phases & Cycles Inc. and does not necessarily reflect the opinion of iA Private Wealth Inc. The opinions expressed are based on an analysis and interpretation and do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors.