Outlook for the Coming Week

Markets had a downer of a close Friday, though the S&P 500 managed to stay positive. What we are seeing is a sputtering and potential downshift in the slope of the move originating Oct. 15. This would mark the second lower infection since the October low.

Supporting this hypothesis is the 15 minute chart, with the break of a multi-week rising trend channel. These transitions are often accompanied by volatility, so be prepared to adjust portfolios accordingly.

S&P 500, 15 minute bars

S&P 500, 15 minute bars

Looking more closely, the 1 minute chart shows a clear break in the middle of the day Friday that initiated the selling pressure and drove the break. At these levels, seemingly small breaks can quickly snowball into emerging trends.

Paying attention to market structure as it develops at these inflection points can yield important early clues to help get an idea of the direction the market appears likely to take. Bear in mind that these structures are always subject to change at the market’s discretion at little or no notice.

S&P 500, 1 minute bars

S&P 500, 1 minute bars

Looking at the daily picture, we see the index getting a little overstretched; not an extreme, but increasing the possibility of a shallow pullback. While the likely scenario at the moment is a more casual drip higher, we’re left with the market at a juncture where the burden of proof is increasingly on the bulls in the near term.

S&P 500, daily bars

S&P 500, daily bars

However, stepping back further, the weekly chart showing the trend originating from the 2009 appears intact. We’re nearing the edge of a long term rising wedge formation. While it could take a good deal of time, expect a break from this pattern at some point.

S&P 500, weekly bars

S&P 500, weekly bars

The big question is: Break out or break down? We tested and held the lower band in October. So no break down in the picture as yet. We’ll assess the possibility of a break out when we’re ready to cross that bridge, and we’ve got a ways to go before we get there.

See you at the open.

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