Today’s stock market analysis shows a scary abandoned baby candle that is warning investors not to buy stocks right now. After an flurry of bullish stock market news sent the share market rallying to new all time highs, including bullish share market news today showing retail sales were positive in November when they were expected to be negative, technical analysis now shows that the stock market is overbought and due for a pull-back. The technical analysis of stocks is important to learn, and this video provides a technical analysis tutorial for beginners. While not a full technical analysis course, this technical analysis for beginners will help you learn day trading and swing trading, and will help you make better decisions so that you can maximize profits and limit your losses.
The stock market rally will definitely continue. However, there is a reason why you should not buy stocks right now, and it all has to do with this candle. I’m Stock Curry. I’m a former Merrill Lynch and Morgan Stanley investment banker, and I have over 25 years of trading experience. History is about to repeat itself. A few weeks ago, I released this video explaining why the stock market will rally 100% over the next three years. But that does not mean you should buy stocks right now. You should actually wait a few weeks and I’m going to explain why. But first, let me show you why the stock market rally is definitely still on.
Earlier this week, we got news that inflation held steady at 3.1%, with core inflation at 4.0%. Even though those numbers were slightly higher than expected, it still represented a continued decline in inflation. And with inflation continuing to go down, the market was widely anticipating that the Federal Reserve would not raise rates again. In fact, the market was pricing in that the Fed would be done raising rates for good, and the market was also pricing in that the Federal Reserve would actually cut rates 5 to 6 times next year.
Now, up until now, the Federal Reserve has made no mention of cutting rates. In fact, when the we last got the FOMC meeting, we received something called a Summary of Economic Projections, or SEP, which essentially looks at where the Fed expects interest rates to be over the next year. And the last time we got an SEP in September, it showed that the Fed was not going to cut rates at all next year. So going into the FOMC meeting on Wednesday, the market was widely anticipating the Federal Reserve to stay the same, even though the market was pricing in 5 to 6 rate cuts. But that’s not what the Federal Reserve did.
While the Federal Reserve did leave rates unchanged, they actually signaled three rate cuts next year. Fed policymakers projected on Wednesday that they would lower borrowing costs to 4.6% by the end of 2024, which was down notably from their previous 5.1% estimate, which was released in September. That now forecasts three rate cuts next year. And with the Federal Reserve shocking everybody by announcing that they would most likely cut three times next year, this sent euphoria into the market. Jerome Powell, the Federal Reserve’s chairman, unleashed the bulls. A bull was on the tracks, delaying the bear trains in New York. A literal bull on the tracks, delaying the bear train. Stocks rallied and bond yields slid as the Fed signaled rate cuts in 2024. The ten year Treasury yield dropped below 4% for the first time in months. This also sent mortgage rates falling as well. And with all of this highly unexpected good news, stocks rallied on Wednesday.
Amazingly, we got even more unexpected good news on Thursday. Retail sales rose 0.3% in November versus expectations for a decline. And that strong holiday spending added to signs that the US might actually beat inflation without a recession. That means that the Federal Reserve might actually pull off a soft landing. And if they do so, this would be the first time in US history that the Federal Reserve raised rates without causing a recession. On Thursday, thanks to the surprising retail sales data, the Dow rose to a new all time high. The S&P 500 and the Nasdaq are both also less than 1% away from new all time highs.
But while the markets cheered the Fed outlook, the recent rally complicates it. Investors have proven overly optimistic about rates several times since the pandemic, sparking previous rallies that just petered out. Some analysts are now warning that growth in the economy is too strong to support the drastic rate cuts that the market is pricing in. The fact is, investors have been wrong about the Fed’s path multiple times in recent years, betting rates would stay lower even as policy makers raised them to 22 year highs. Hopes for cuts have spurred previous rallies in recent months, only for those rallies to fall flat. Michael Rosen, chief investment officer of Angels Investments, said the market has been ahead of reality for the past two years, and it is still ahead of itself with how much the Fed is going to cut rates. The market is currently pricing in 5 to 6 rate cuts next year, while the Fed is only predicting three. And that’s why financial advisers are warning investors to treat this stock market rally with caution. Don’t fall prey to irrational exuberance. Things are never as bad nor as good as they seem.
So what should you do amid this recent market rally? Well, if we look at technical analysis, it is telling us to wait and be patient before buying stocks. My concern is this candle that we got on Thursday. This candle is called an abandoned baby. And abandoned baby candles are bearish indicating a reversal to the downside. And it’s not just the abandoned baby that concerns me. There’s another short term concern that I have as well. In technical analysis, we often use something called an RSI, which can help indicate if a market is overbought or oversold. Whenever the RSI gets above 70, it indicates a market that is overbought and due for a pullback. Currently, the RSI in the market is near 80.
The last time the RSI in the S&P 500 was near 80 was on September 2nd, 2020. On that day, the RSI hit 82 and it also marked a top in the market. After that day, the market went on to fall for the next three weeks. But just because you might want to be short term bearish does not mean that you want to be long term bearish, and here’s why. If we zoom out on this chart, you can see that after the S&P 500 three week pullback in 2020, it then went on to have a massive rally over the next year and a half. So the technical analysis on the S&P 500 is telling investors to wait before buying stocks, wait for a pullback for about 2 or 3 weeks, then buy the dip and ride the next rally higher, possibly that 100% rally for the next three years as I explained in my previous video.
Now, even if the market does go down for the next few weeks, there are ways to make money as the market goes down, as well as ways to make money if the market goes back up. Today my trading portfolio was up over 30%. I closed an overnight SPX call option for a 175% profit. I closed a PYPL swing trade call option for a 135% profit, and I currently hold a MARA swing trade call option that’s currently up 247%, that I do plan to close here soon. Now, as you can see here on my trades, not all of them are profitable. But even with a few trades losing money, my winning trades were large enough to more than overcome those. And that is why my portfolio was up 30% today.
So if you want to possibly make 30% profit in your portfolio, come get all of my trades including my swing trades and my day trades. Come learn what I’m buying, when I buy, and get my trade alerts as soon as I place the trades. All you have to do is join my discord here. I am in the Stock Dad’s discord along with about 20 other traders, and we’re all giving our trades in there. And one of my fellow traders is starting a small account challenge on Monday where he is going to attempt to turn $500 into $5,000 over the next month. The last time he did a small account challenge a few months ago, he turned $1,000 into $10,000 in just two months, and prior to that, he turned to $1,000 into $5,000 in just nine trading days. He’s extremely successful with the small account challenges. So if you want to get in on the next small account challenge starting Monday, where he is going to turn $500 into $5,000, make sure you join the Stock Dad’s discord, along with myself and 20 other traders. Just go here and join us in the discord to get all of my trade alerts, as well as to join the Small Account Challenge, where we’re going to try to turn $500 into $5,000 over the next month.