The Shakedown 3-5-23

LAST WEEK, S&P 500 (+1.97%)

Monday:  +0.34%

Tuesday: -0.37%

Wednesday: -0.38%

Thursday: +0.78%

Friday: +1.60

Stocks finished higher last week as bulls prevailed in a major way at the first real inflection point we've seen this year. After beginning the year with a vicious rally, stocks faded the second half of February, with back and forth action giving unclear signals of market direction. After backing into the 200 day moving average, bulls kept the rally hopes alive with a big upside reversal Thursday along with upside follow through Friday.

Keeping things simple -- stocks pivoted exactly where they needed to Thursday. The follow through day Friday is important in this context. Thursday's low becomes a very important support level for this current rally that could be just beginning. If we see Thursday's low violated in a major way, that would indicate this is another fake-out rally and the volatility should be expected to continue. We saw very constructive action this week though.

For economic data and news this week, we have monthly factory orders being reported tomorrow. Tuesday, we'll get a closer look at Powell's decision to raise rates, as the Fed Chair testifies before the House Financial Services Committee. On Wednesday, we get the JOLTS job openings report. On Thursday we have initial jobless claims to get a better idea of the labor market.

We should be looking for the market to digest the gains from Thursday/Friday and not expect a thrust higher early in the week after such a large move to end last week. As long as the bulls don't completely give up the move, it's seen as a win this week. If we see early weakness followed by strength later in the week, it would not surprise me in the least. Continue being tactical out there and keep looking for singles and doubles as this market will surely continue with the volatility. 

Stage Analysis

In 1988 Stan Weinstein release the book above, and it's since become one of the most important book in the trading universe with the first emergence of stage analysis. Below is a quick recap of the principle, with the 30 week moving average playing a key role in determining long term trends. After a stage 1 base a security is set to showcase a major advancement with a stage 2 uptrend. A key component in this equation, according to Weinstein, is the 30 week simple moving average as can be seen in the graphic below.

"For as long as the price stays above the 30-week MA, and the MA line is heading upwards, Stan says the index (or stock) is rising. But if price crosses below the MA and the MA flattens and heads down, then there could be rough times ahead and it is time to sell"

A great sign for the market is the defense of the 30 week moving average last week, after the January run firmly broke the moving average to the upside. This doesn't firmly cement that we cannot break this area to the downside, but it's a great sign as a long term market trend.

Earnings This Week

BC Long

BC blasted off to break above major base resistance in the first couple days of February. It's since spent the month consolidating creating a flag that's only gotten tighter and tighter. It finally looks to break out this week above the recent resistance areas at 89.

Trigger: $89

Stop $85.89

Target: 96-100+

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