S&P 500 Market Outlook November 2016

Market Analysis

S&P 500 Market Outlook 

November 3, 2016


SUMMARY

  • Market has failed to rally on oversold short- and medium-term breadth readings – more downside likely.
  • Next level of ‘support’ is extremely pessimistic sentiment – not there yet.
  • Long-term breadth supports cyclical bull market.
  • Macro conditions provide firm downside support; valuation a potential but unlikely risk.
  • Global protectionist wave could propel Donald J. Trump to victory, acting as final downside catalyst.

DISCUSSION

In my October 4th journal entry, I noted that it appeared the consolidation period the market had been working through since early September was likely nearing an end. The macro backdrop was solid, long-term market breadth remained firm, and shorter-term market breadth had reached oversold levels typically associated with short- to medium-term market bottoms. While medium-term market sentiment was not at extremely depressed levels, it had declined enough to work off excess optimism.

Down over 3% since my 10/3 write-up, clearly, the market has failed to respond to the short-term oversold condition registered by 50dma breadth (percentage of stocks over their 50-day moving average). As such, it must continue working down the ‘support stack’ in order to find a durable support level. The ‘support stack’ looks as follows:

  • Short-Term Breadth
  • Medium-Term Breadth
  • Sentiment
  • Long-Term Breadth
  • Valuation
  • Macro Conditions

This framework is not sacrosanct. It is simply a logical progression through which the market tends to work in order to find strong-handed buyers.

WRITE-UP

Via Seeking Alpha.

DISCLAIMER

The views and information I provide are for informational purposes only; are not meant as investment advice; are subject to change without notice of any kind; do not constitute an offer of products or services with regard to any fund, investment scheme, or pooled investment; nor do they in any way, shape or form represent the views of my employer.

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