This week we have a stock market forecast for the week of 5/16/21 from our friend Bo Yoder of the Market Forecasting Academy. Be sure to leave a comment and let us know what you think!
The S&P 500 (SPY)
In last week’s forecast, the S&P 500 (analyzed here using SPY) had broken out to a new high, but as I wrote...
“This push to new highs is showing as “unsponsored” in my suite of market forecasting tools. This indicates that the breakout is likely to be short-lived”
That’s exactly what happened, and the sellers took control over the week and pushed prices sharply lower. Now we are bouncing, and my tools are showing the bears have become quite aggressive in selling this rally. My forecast for next week would be for a lower high to form and then a push back down to break below the recent lows near $405.
Autodesk (ADSK) sold off steadily again this week but failed to fully reach the price target near $260 per share. It has shown signs of a reversal in smaller timeframes and is likely to rally back up into the $280s as this next correction forms.
My tools are measuring increased bullish interest, so I forecast that this correction is more likely to produce a double bottom or other reversal as the lows of this week are tested. The odds for a full retest of the lows near $260 are a lot lower, so since the “easy move” has already been experienced, it is time to take profits and close out this trade in full.
Electronic Arts (EA)
This week, Electronic Arts (EA) went back up into the red zone to offer a second chance for entry to those who may have missed it... then sold off to close out the week with a red bar on the weekly chart.
Bearish energy has grown this week, so my forecast for next week would be for a test and eventual breakdown below the $135 area.
Everything is looking great, and this position just needs time to “ripen” as the bears take control over the trend.
I keep expecting Coca-Cola (KO) to violate the highs of the red zone near $56 and trigger stop-loss orders, but it keeps surviving... just barely.
Nothing about this week’s action changes my forecast and management choices that I wrote about last week, so that I will reproduce them here.
“I always think about the math of trading in terms of $1,000 risk “units.” If I scratch the trade for nonperformance, it would book a loss of about $800 for every $1,000 of risk put into this position.
That’s not saving much, and while the odds for a profitable outcome are diminishing... KO is still bearishly biased and could pull it out.
So the math is this: Do I save a little money and book the loss, or do I let it work itself out?
In other words, am I more advantaged taking a certain $800 loss, or do I leave it be and essentially risk an additional $200 for a small probability of making $1,000-$1,500?
The breakeven odds are for this question is about 17%...
Here is how that works out: If I risk $200 to make $1,000 and I make $1,000 17 times for a gross profit of $17,000, then lose $200 83 times for a gross loss of $16,600, I would produce a theoretical gain of $400.
So, therefore, as long as I have confidence that the odds for success of this trade are better than 17%, I should stay in! (This is a lot like calculating “pot odds” in a poker game to determine whether the advantaged play is to bet or fold..)
Gold (analyzed here using GLD) continues to press higher, although on diminished bullish power. Normally this would be the trigger to take off some profits to lock in gains. However, because I believe and am forecasting that this is a significant bottom for Gold, I would expect a more substantial correction to begin forming in the next week or two and would let it “breath” without fear or stress.
This market is doing everything it can to indicate that a new uptrend will be huge and sustained. Our job as market forecasters is not to get bored or fearful and let it work itself out as the cycles take us ever higher!
Regeneron Pharmaceuticals (REGN)
Regeneron Pharmaceuticals (REGN) rallied back up into the $510 green target zone on Monday to close out elegantly on a positive note.
This position was a slow but steady gainer and really showed how much back and forth markets tend to need as they rally, then correct, then rally again. Being able to keep your head and stick to the plan during a draw-down cycle is KEY to long-term consistency as a trader (And it has paid off nicely here in REGN).
The Eurodollar vs The US Dollar
The EUR/USD currency pair continues to work out a textbook head and shoulders reversal pattern on its weekly chart.
As mentioned in last week’s forecast, the proprietary tools I use for measuring supply/demand so that I can accurately forecast prices shows that this bullish move is not well sponsored. This forecast came true early in the week as the price fell sharply but then ping-ponged back up to close out the week right near where it started. This doesn’t help or hurt the odds, so this week was a wash, and I will have to wait for another week to pass before I can take a new set of measurements and update my forecast.
This short is still considered attractive anywhere within the red zone and should produce at minimum a retest of the lows near 1.1700.
To Learn How To Accurately and Consistently Forecast Market Prices Just Like Me, Using Market Vulnerability Analysis™, visit Market Forecasting Academy for the Free 5 Day Market Forecasting Primer.
Check back to see my next post!
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About Bo Yoder:
Beginning his full-time trading career in 1997, Bo is a professional trader, partner at Market Forecasting Academy, developer of The Myalolipsis Technique, two-time author, and consultant to the financial industry on matters of market analysis and edge optimization.
Bo has been a featured speaker internationally for decades and has developed a reputation for trading live in front of an audience as a real-time example of what it is like to trade for a living.
In addition to his two books for McGraw-Hill, Mastering Futures Trading and Optimize Your Trading Edge (translated into German and Japanese), Bo has written articles published in top publications such as TheStreet.com, Technical Analysis of Stocks & Commodities, Trader’s, Active Trader Magazine and Forbes to name a few.
Bo currently spends his time with his wife and son in the great state of Maine, where he trades, researches behavioral economics & neuropsychology, and is an enthusiastic sailboat racer.
He has an MBA from The Boston University School of Management.
Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation for their opinion.