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October 21, 2019

Stock Market: a downside test of the trading range could be possible.

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The short-term outlook calls for caution, after stock prices broke down below the previous 2-day lows on Friday.

All of the stock price indexes face formidable upside chart resistance near previous 2019 highs. That would be the 3008 to 3028 zone for the S&P 500 index.

Last Thursday's high for the S&P 500 at 3008.29 very well could have been the termination of an 11-day up wave. Next week's price action will confirm or deny that interpretation.

Historically, seasonal tendencies for the week ahead suggest a choppy stock market. Seasonal tendencies can be overwhelmed by news headlines.

Stock market sentiment indicators are mixed for the short-term.

The S&P 500 is systematically bullish for the long term, because price is above both the rising 50-day and the rising 200-day Simple Moving Averages (SMA), and the 50-day SMA is above the 200-day SMA. Of course, trend following using moving averages always lags at price turning points.

Easy monetary policies of the global central banks have been and remain bullish for markets.

The economic backdrop is not helpful. Actual economic reports have been weaker than economists' expectations. It is clear that the global economy has slowed considerably, especially trade and manufacturing. The Conference Board's Leading Economic Index turned down after September, 2018, and the Consumer Confidence Expectations Index fell sharply to the lowest reading since December, 2018.

Stock valuations are relatively high.

Investment selection continues to make a significant difference. The LargeCap, S&P 500 stock price index ETF (SPY) is only 1.54% below its 52-week high, but the following index ETFs are underperforming and bearishly diverging: BRIC (BKF) 6.84% below its high, Emerging Markets ETF (EEM) 6.38% below, Dow-Jones Transportation (IYT) 5.89% below, SmallCap (IWM) 5.28% below, and MidCap (MDY) is 2.83% below its high.

Long-term U.S. stock sector rotation continues to be dominated by the outperformance of the Defensive sectors, indicating investor caution about long-term economic prospects. The following best-performing sectors are demonstrating the greatest trend strength: Real Estate, Utilities, Technology, Consumer Staples, Consumer Discretionary, and Communication Services.

Meanwhile, the following Cyclical sectors remain relatively weak for the long term: Energy, Health Care, Industrial, Materials, and Financial. With the exception of Health Care, which normally is Defensive, Cyclical sectors tend to rise and fall in anticipation of the ups and downs of the general business and economic cycle.

Foreign and Emerging stock markets rallied over 11 trading days through Thursday, and rose above both 50-day and 200-day SMAs, probably helped by hopes for trade deals (China, Brexit). Longer term, both have been weaker than U.S. stock indexes over the past 2 years. The 50-day SMAs remain below 200-day SMAs, keeping both no better than systematically neutral for the long term. Foreign markets fell to their lowest prices since last January in August. These markets are important because they have led the U.S. stock market at important price turning points in recent years.

U.S. Dollar ETF (UUP) fell below its rising 50-day SMA on 10/16/2019 turning systematically neutral.

Gold (GLD), Gold Miners (GDX), and Silver (SLV) prices remain systematically neutral for the short term, below their 50-day SMAs. All three remain above their rising 200-day SMAs, suggesting a short-term correction phase only.

Copper (JJCTF) price remains systematically neutral above its rising 50-day SMA. Copper remains below its falling 200-day SMAs, suggesting a short-term correction phase only. The price of Copper is sensitive to prospects for global economic growth.

Oil (USO) remains systematically bearish below its 50-day and 200-day SMAs and with the 50 below the 200.

U.S. Treasury bonds (TLT) and notes (IEF) prices remain systematically neutral for the short term below their 50-day SMAs. Both remain above their rising 200-day SMAs, suggesting little more than a short-term correction phase.

The full report offers clear and unbiased guidance on the following each week:
Global stock markets
The Defensive stock sectors
The Health Care sector
The Cyclical sectors
The Technology sector
The Financials sector
U.S. bonds and notes
Commodities (Oil, Metals, Agriculture)
Objective Quantitative Rankings for hundreds of Exchange Traded Funds

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My latest book was named one of the top investment books by Stock Trader's Almanac 2005. This book also received an excellent review in the November 2003 issue of Futures.
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My ETF Rankings are not investment advice. Rather, they are an objective ongoing research study.

Analysis of market forces may offer a sense of probabilities. But the many variables that can impact market prices are notoriously difficult to predict. And, market analysis is something less than an exact science. So, sound trading tactics are always recommended. See my
Money Management Rules.

According to CFTC Rule 4.41, hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

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Robert W. Colby, CMT,
is a consultant to institutional and private investors and traders, providing regular analytical reports, custom research services, and trading systems tailored to clients' objectives. Clients include the most successful traders and investors in the world. Robert is the author of The Encyclopedia of Technical Market Indicators, Second Edition, McGraw-Hill, 2003, which has become the standard reference for indicator and trading systems design. Previously, at several large Wall Street firms, Robert worked as a proprietary trader, technical analyst, and fundamental analyst. He also was adjunct professor at New York University and New York Institute of Finance, where he developed new courses on technical analysis and market timing.

Robert W. Colby is a Chartered Market Technician (CMT), an accreditation granted to members by the CMT Association (https://cmtassociation.org/) after demonstrating professional competence and ethics over a period of many years. Robert has been a member since 1980, and he strongly supports the CMT Association's high standards. He also supports the The Technical Analysis Educational Foundation (https://www.taeducation.org/about/), which works to have technical analysis included in the curriculum of major business schools. The Market Technicians Association (MTA) is the national organization of investment analysts, stock market analysis professionals, and certified market technicians in the United States.

 
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Ranking ETFs
"Robert Colby has evolved a system that, while hardly foolproof, is pretty clever," wrote Daniel Fisher, "Surfin' ETFs", Forbes, Investment Guide, Special Issue, June 4, 2007.
Please click here to view this article
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INTERVIEW of Robert W. Colby in Technical Analysis of STOCKS & COMMODITIES magazine, December 2006 issue.
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"Gold's next move: History, logic, and intermarket relationships. See if testing gold's relationship to different markets over a 32-year period provides possible trade signals for the yellow metal."
by Robert W. Colby, CMT.
Please click here to view this article
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"Which gold indicators are best? Divining gold's next move."
by Robert W. Colby, CMT.
Please click here to view this free article
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"Applying the Relative Strength strategy to ETFs."
by Robert W. Colby, CMT.
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"PUTTING CANDLES TO THE TEST, How Profitable Are They Really?" by Robert W. Colby, CMT. Published in SFO, STOCKS, FUTURES AND OPTIONS MAGAZINE, Volume 5. No. 8. August 2006, pages 91-94. Please click here to buy this article. (Scroll to bottom of linked page.)
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TradingMarkets.com interviewed
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View the entire interview online
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Active Trader magazine September 2004 interviewed Robert W. Colby. 4 pages. "Robert W. Colby: Technical collector. A discussion with Robert W. Colby about technical trading and his revised Encyclopedia of Technical Market Indicators, Second Edition. By Active Trader Staff."
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For information about
methods that would have performed substantially better than systematic trend-following in back-testing simulation dating back 32 years, email me by clicking on the following link:
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Click here for a simulated performance graph of one of my trading systems applied to a stock price index.
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MetaStock® PC Software for Technical Analysis
MetaStock® is a powerful technical analysis software program for your personal computer. It offers more than 200 built-in indicators and line studies to enable you to explore a wide variety of methods. And it empowers you to build, back test, and optimize custom trading systems to suit your own particular requirements.
Great new version just released May, 2018.

Click this link to save 7%-9% on MetaStock® software
.
Or, click the banner below for a one-month free trial.

MetaStock Software