US Market Outlook for the Week Ahead

Personally think: most likely scenario for markets to rebound to a Fibonacci level before downtrending further as it has broken 100 SMA (Simple Moving Average) dynamic support with unexpectedly high velocity. Furthermore, corrective counter-trend candles do not seem to be gaining strength and have encountered significant early resistance. The ideal case should be stopping volume before uptrend but there was no stopping volume but rather a very impulsive  (but convicted) rebound which weakened over time.

The Fibonacci level we are looking at will be at the 13200 region for the NASDAQ Composite and NDX-100. However, if $13220 breaks successfully on NDX, it is strongly indicative that the correction is over. 

Hence, a defensive posture will be to take partial profits or partial losses at $13220 or initiate a hedged position on your stocks as we approach $13220 via options trading. You can close the put once the main index has rallied past $13220 and/or when your stock has broken key resistance levels. However, if it is clear the direction of the stocks is down, then you can sell off all positions and wait for Wave 3 to terminate. Wave 3 is going to be quite serious as Wave 3 is often significantly more corrective than Wave 1.

Possible catalyst is the passing of the fiscal stimulus, which will mean cushy unemployment benefits - though the worry is that interest rates might go higher, such that the key 1.6% level for Treasury 10-year is challenged. Furthermore, fears about inflation and a strengthening USD may lead to more bearish momentum as we move ahead. After all, the NASDAQ has broken the 150MA in a very sharp move, and the rebound has shown signs of weakening, despite the encouraging fact that the strong rebound was staged as interest rates were going up slightly on the daily charts. As interest rates soar further (if they soar), the market may over-react further and this can send technology stocks down and drag the SPX down with it as well - investors may soon realise that no stocks are safe, not even the cyclicals and correction ensues across SPX, DJIA and NDX. The other scenario is for the correction to be limited to Tech stocks in the SPX and NDX while sector rotation continues to cyclicals and defensives. Some think that there is definitely some room for defensives and cyclicals to grow further.

Some think that the NDX may crash, bringing it 30% down to the key 9600 support. This will mean the complete downtrend EW series from EW1 to EW5, with a slight rebound along the 200SMA. 

A crash, however, in the S&P, DJIA and NDX, is extremely unlikely given:

1. Strong employment report in February
2. Steeply declining COVID cases
3. CPI Consumer Inflation data expected to show little inflation
4. Fiscal stimulus and Fed's promise to keep interest rates low as the economy is not ready yet (though as spending increases, interest rates may edge up higher)

 

If one is moderately optimistic, then, prices will rebound at around the 200SMA and the EW terminates at EW3.

Of course, if one is very optimistic, the worst is over.

As far as the ultra-bearish scenario plays out (NDX correcting to 9600), and as far as the moderately optimistic scenario is possible (correction to 200SMA region and terminating at EW3), we have with us a very exciting buying opportunity into the US markets. If you would like to buy with us, at key support levels close to the fundamental valuations of key US blue chips and large-cap stocks, do contact my business manager Wes @ 9820 1686 to join our investment class's second intake.  The investment class is organised by Apex Education Private Limited and spans 8 lessons, with 6 months of trading support. See you there!