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Long, Medium, and Short-term Outlooks


The U.S. economy continues to expand with many economists raising the US gross domestic product (GDP) growth rate to be as high as 8% this year. It is the fastest growth pace since 1983 in what appears to be another V-type economic recovery. On the macro front, the long-term US Treasury bond yields continue to rise, reflecting a sustainable economic recovery from the COVID-19 pandemic and the possibility of rising inflationary concerns.


The global vaccine rollout, accommodating monetary policy, massive stimulus programs, and the anticipation of pent-up consumer demand when the lockdown restrictions end support the optimistic views from economists and wall street strategists.

So, what are the technical outlooks of the US stock market as the seasonal weakness period coinciding with the sell in May and go away is just around the corner?


SPX short-term outlook (intra-day chart)


The recent 3/25/21 to 4/16/21 SPX rally of +337.81 or +8.77% has created another moderately overbought condition. A short-term head and shoulders top appears to be developing in the past week. The left and right shoulders are 4,152-4,164 (4/14 and 4/19/21 highs), the head is 4,191.31 (4/16/21 record high), and neckline support is 4,118.38-4,120.87 (4/14 and 4/20/21 lows). The height of the h/s top pattern is 72.93. A convincing move above the left and right shoulders at 4,152-4,164 and preferably above the head at 4,191.31 negates the head/shoulders top and suggests the next rally to 4,264 before the onset of the summer doldrums.


On the other hand, weak seasonality factors (i.e., sell in May and go away and summer doldrums) and overbought conditions may begin to influence the marketplace over the near-to-medium term. Violation of neckline support below 4,118-4,121 warns of the next SPX decline toward 4,045.5-4,062 (h/s top breakdown target and 38.2% retracement from Mar-Apr 2021 rally. Below this signals a deeper SPX correction to 4,021-4,034 (4/5/21 gap up and 50% retracement) and then to 3,961-3,982.5 (61.8% retracement and 50-day ma).


SPX medium-term outlook (daily chart)


The negation of the broadening top above 3,700 during early-Dec 2020 is technically significant as this reaffirms the resumption of the structural bull trend. The V-pattern breakout above 3,393.52 is also crucial as this still hints at +1,201.66-points or an SPX projection of 4,595, possibly as early as year-end. An overbought condition will develop when RSI nears 79-83 or the prior 12/26/19 and 9/2/20 RSI peaks. The initial support is 3,950.5-3,961 (3/11/21 breakout and 50-day ma), and below this to 3,759-3,820 (extension of the 2018 broadening top and Dec 2020 ascending triangle), 3,694-3,723 (1/29 and 3/4/21 lows), 3,615 (200-day ma), and then 3,393.5 (V-breakout).


SPX long-term outlook (monthly chart)


In the past 100-years, three very long-term generational trends are evident in SPX: (1) generational lows occurred along the lower trend line (red dash line - 1,348-1,646). Generational lows and highs occur almost every 35-42 years or so. The middle blue internal trend line (2,504) is the equilibrium level or fair value. The upper green trend line (4,740) is the generational high. The two extreme bullish market periods coincided with speculative bull rallies (i.e., 1921-1929 roaring 20s and 1982-2000 tech/telecom bull). By connecting the tops of the two prior structural bulls (1929 - 31.30 and 2000 - 1,553.11), places SPX at a high of 4,740. Will SPX peak here?


Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

Source: Courtesy of StockCharts.com

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