Week-In-Review: Bullish Pattern Forming On Wall Street
The market is forming a bullish handle pattern in a larger U-shaped (a.k.a. cup) shaped based. The major indices are tested major support near their respective 50 DMA lines on Thursday. For now, that is the next important level of support to watch. The next level of support is September’s low which is just below the 50 DMA line. On the upside, the first level of resistance is the downward trendline in the handle, then the high of the handle, (October’s high), and then the all time high for each of the major indices from earlier this year. This brings up my next big trading rule, the next move wins. For now, we still have a slew of earnings that are coming out over the next few weeks and of course the election.
Stocks opened higher on Monday but sellers showed up and sold off by the close which was not a good sign. The market continued to focus on the ongoing drama regarding the stimulus package. Stocks opened higher on Tuesday after Housing starts rose by +1.9% to a seasonally adjusted annual rate of 1.415 million units in September 2020. That missed estimates for 1.457 million. Meanwhile, single-family housing starts jumped 8.5 percent to 1.108 million, while the volatile multi-family segment dropped 16.3 percent. But sellers showed up and stocks gave back most of the gains by the close. After the close Netflix gapped down after reporting earnings and Snap gapped up after reporting a very strong quarter. Stocks fell on Wednesday as sellers remained in control. In other news, stimulus talks continued even though Pelosi’s Tuesday deadline expired. After the close, Tesla gapped up 3% after the company reported earnings.
Thursday & Friday Action:
Stocks rallied nicely on Thursday as optimism spread regarding the ongoing stimulus package. Bitcoin surged after PayPal said it will begin accepting the digital currency. Bitcoin also rallied after legendary investor Paul Tudor Jones said he thinks Bitcoin is a great hedge against inflation. After the close, President Trump and VP Biden held their last debate before the election. On Friday, the market was quiet as the bulls defended the 50 DMA line.
Market Outlook: Flood The System With Liquidity
The bulls are back in control as September 2020 appeared to be a normal (but steep) correction within a longer term (and strong) uptrend. Earlier this year, global governments, and global central banks, once again, stepped in with massive rate cuts and other “aid” packages to help “stimulate” both Main Street and Wall Street. As long as March’s lows hold, the market will likely move sideways to higher. On the other hand, if March’s lows are breached, then look out below. As always, keep your losses small and never argue with the tape.