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Market Outlook

The popular averages closed mixed again on Thursday. The NASDAQ Composite resumed its winning way to reach its highest close in nearly fifteen years. Consumer prices deflated again in January, and are down for the last twelve-month period, mainly due to gasoline. Durable goods orders increased more than expected in January. However, unemployment claims grew more than expected last week. Meanwhile, the price of crude oil fell while gold rose on Thursday.

   Above is my 3-month chart of the S&P 500 exchange traded fund (SPY). After rising to an all-time closing high on December 5, the SPY price tumbled under its 50-day moving average on December 15 causing my weekly outlook arrow to briefly turn yellow. However, the price moved back above smartly on December 17, allowing my weekly arrow to quickly rejoin the others as green. During mid-December the volatility (VIX “fear”) and relative strength (RSI) indices were back near their levels at the time of the October trough for the SPY. That along with heavy trading volume indicated another important SPY bottom had may have been drawn.

   As were the cases in October and December, the SPY price in early January fell under its 50-day moving average and then rebounded sharply back above. However, the fall back through it in mid-January briefly painted my weekly and monthly outlook arrows a cautious yellow. The price that week approached the levels of the mid-December and early January lows (white line). The sharp bounce above on January 16 with supportive trading volume was a positive signal. It reset my monthly arrow to green.

   An upward continuation a couple of weeks ago restored my weekly arrow to green. High volatility earlier this month raised some concerns. However, the launch on February 2 from the intersection of the white support line and 200-day-moving average to then close above the 50-day-moving average was most encouraging. After a slight dip on Febraury 4, the price shot nicely above the 50-day MA on February 5 to further inspire confidence. Despite drops on February 6 & 9, the SPY price held at that MA and then bounced nicely above on February 10, leading to a record closing high on Tuesday and finishing near that level on Wednesday and Thursday. Still unworried.

DISCLAIMER: Our commentaries are provided as general information and not investment recommendations. You are responsible for your own investment decisions. Our opinions are based on historical research and data believed to be reliable. There is no guarantee that results will be profitable. We are not responsible for errors or omissions. We may hold positions in vehicles that are mentioned.

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