Ed’s Stock Market Outlook
Typically, traders look for a year end surge in the market as a “Christmas present”, but based on my technical analysis we may not be getting one this week. On Friday, you can say not hardly a creature was stirring, not even a mouse, as it was the slowest trading day in over a year. The stocks finished a bit higher as the health care sector brought in most of the gains. Retailers, as expected, continued to lose ground into the Christmas holiday. The energy sector also took a small hit as it took its first weekly loss since the start of the month of November. However, the Dow Jones industrial average made gains for the seventh week in a row. On Friday, the major US indexes traded in a narrow range, which I feel will continue until the president elect finally takes office and begins his term.
There seems to be confidence building in the labor market, but based on the sentiment of the incoming administration, there does not seem to be much hope for any gains in the minimum wage. This I believe is the reason we did not experience a spike in consumer spending into the holiday season. But, the good thing is most Americans are feeling more secure in their financial outlook.
Technically speaking what I am seeing this coming week is the volatility remaining stagnant as the market begins to move slightly down out of this descending triangle that is forming. We have been flirting with an overbought condition as well. When I am assessing the overall volatility of the market, I will look at 3 things; the price action, the momentum, and the volume. Typically, we should have seen a surge in volume leading into the Christmas holiday, which we did not get. So, with this analysis and the formation of the descending triangle on the chart, the most likely scenario for me is a pullback to the 20-day simple moving average and finish out the week trading in a channel between the 20-day and the 228 level. However, a pullback to the 50-day simple moving average with some unexpected volatility is a possibility.