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Market Outlook

The popular averages closed narrowly mixed again on Friday amid little volatility or trading volume during the shortened trading session on the day after Thanksgiving. Significant macroeconomic reports were nonexistent. A big decline in the Shanghai stock market due to an investigation of potential violations by Chinese brokerages was largely ignored in America. Brick and mortar stores appear to be disappointed by Black Friday shopping which is increasingly done online. Meanwhile the prices of both crude oil and gold fell on Friday.

   Above is my 3-month chart of the S&P 500 exchange traded fund (SPY). During the summer the price oscillated between the 50 and 200-day moving averages and not far from the all-time high set in May, until the plunge of August 20-25.

   Rampant pessimism by pundits, advisers and investors during late summer returned the contrarian in me to optimism for the longer term. I sensed smart money accumulation during September, while the pundits were screaming doom and their listeners were still bailing out. Investors may have been anticipating the usual trough for October, but in recent years many of the normal seasonal turning points have been slowly advancing to earlier in the calendar year.

   The SPY’s rebound September 29 and especially the huge intra-day reversal on October 2 restored all of my outlook arrows to green. The 50-day moving average provided support for a bounce in early October. On October 23 the 200-day moving average was surpassed. After brief hesitation just above that level during late October, the price soared further above it on October 28 without giving back much during the rest of that week.

   November began with a two-day rally approaching the SPY’s all-time high before a corrective period afterward. Investors appear to have been cowed by what appears now to be an inevitable increase in the FOMC’s interest rate targets on December 16. The fall beneath the SPY’s 200-day moving average on November 12 created enough concern to paint my weekly outlook arrow a cautious yellow. The continued decline on November 13 turned my monthly arrow yellow, however the November 16 rally flipped it back to green. The surge back above the 200-day MA on November 18 pulled my weekly arrow back into the green stable.

   Now the record high of May is again within striking distance. A Santa Claus rally often follows the Thanksgiving weekend.

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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