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Market Outlook

The popular averages closed mixed on Friday. Used home sales increased in December. The Markit purchasing managers index points to a further rise in manufacturing but at a slightly decelerating pace. Meanwhile, the prices of crude oil and gold fell on Friday.

   Above is my 3-month chart of the S&P 500 exchange traded fund (SPY). The October 21 spike rise above the 200-day moving average was most encouraging. After a retreat the next day, the price jumped on October 23 & 24 to nearly tickle the 50-day moving average. The sharp move above on October 28 may have signaled more clearly that the cool weather bull had already been unleashed. The recovery to a new high on October 31 after a vicious six-week trough, vindicated my decision to merely paint my outlook arrows yellow rather than red during the slide, and switch back to fully bullish right at the market bottom.

   After hitting 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 this month fell under its 50-day moving average and then rebounded sharply back above. However, the fall back through it last week briefly painted my weekly and monthly outlook arrows a cautious yellow. The price last week approached the levels of the mid-December and early January lows (white line). The sharp bounce above on Friday last week with supportive trading volume was a positive signal. It reset my monthly arrow to green. Also the expiration of what had been LEAP options may have reduced the weight on the market. An upward continuation on Tuesday restored my weekly arrow to green. The strong move above the 50-day moving average on Thursday and holding at that level on Friday inspires even more confidence.

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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