The big culprit on Wednesday for the drop in stock indexes was oil plunging to levels not seen since 2009 and China once again. The Shanghai Composite Index collapsed 4% on Wednesday following a 6% decline on Tuesday. This evening as I write this market direction the Shanghai Composite Index is down 1.5% for Thursday so far. So much for manipulation of your market. You can do just about anything to try to boost stock values but investing is about emotion and the more you try to limit selling, the more investors want out. The Shanghai Composite Index is now down over 30% from its high.
Early Wednesday morning I posted before the markets open that it would be a day to seek protection. I was busy today answering dozens of emails and doing a small number of trades including my Spy Put Hedge. I want to thank all those who emailed me with their results from buying SDOW or Spy Puts or other assets that profit from a down move. All the emails of thanks are deeply appreciated. I’m glad so many members profited from the day’s decline. Now let’s look at what we might expect to see tomorrow.
Advance Decline Numbers for Aug 19 2015
Today’s big down day jumped volume to 3.5 billion shares. Of those shares 80% were trading down. 72% of all stocks on New York were moving to the downside. New lows reached 275 and new highs just 34.
As explained before, the number of new lows is widely outpacing new highs. This means that rallies are suspect and will keep failing. So while there could easily be a bounce back any upside rally will fail until new highs start to outpace new lows.
Market Direction Technical Indicators At The Close of Aug 19 2015
Let’s review the market direction technical indicators at the close of Aug 19 2015 on the S&P 500 and view the market direction outlook for Aug 20 2015.
Market Direction Technical Analysis for Aug 19 2015
Stock Chart Comments:
The index almost reached the 200 day moving average in the morning as it plunged through the 2075 support level. That move to the 200 day moving average coupled with the Fed minutes rebounded stocks, but the rebound was short-lived. Still the S&P managed to close above the 200 day moving average but well below the 100 day. Meanwhile the 20 day simple moving average (SMA) is continuing to plunge after issuing a sell signal yesterday. The drop today did not take out the low of Aug 12 but has put the market in place for a lower top and set it up for more downside action.
Support and Resistance Levels:
These are the present support and resistance levels and there are still no changes.
2100 is light support. Stocks will have to stay above it to change it back to solid support and convince investors that the market has staying power and will push well beyond 2100. That still does not appear to be the case.
2075 is light support. Below that is 2050 which is also light support. Stronger support is at 2000 which has repeatedly held the market up throughout each pullback in January and February.
Weak support is at 1970. Stronger support is at 1956.
1870 and 1840 are both levels with strong enough support to delay the market falling and should see a sideways action attempt while investors decide whether to sell or buy.
The other two support levels are 1775 and 1750. I have explained that these two are critical support for the present bull market. While 1775 is important it is 1750 that is the bottom line.
A break of 1750 would mark a severe correction from the most recent high. This would be the biggest correction since April 2012. A pull-back of that size would definitely stun investors and bring to question whether the bull market is finished.
Momentum: Momentum is negative and falling.
MACD Histogram: For MACD Histogram, I am using the Fast Points set at 13, Slow Points at 26 and Smoothing at 9. MACD (Moving Averages Convergence / Divergence) issued a sell signal today (Aug 19) which needs to be confirmed.
Ultimate Oscillator: The Ultimate Oscillator settings are: Period 1 is 5, Period 2 is 10, Period 3 is 15, Factor 1 is 4, Factor 2 is 2 and Factor 3 is 1. These are not the default settings but are the settings I use with the S&P 500 chart set for 1 to 3 months. The Ultimate Oscillator is positive and falling.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal remains negative and is pointing lower for stocks.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic tries to predict the market direction further out than just one day. The Slow Stochastic issued a sell signal today for stocks.
Fast Stochastic: For the Fast Stochastic I use the K period of 20 and D period of 5. These are not default settings but settings I set for the 1 to 3 month S&P 500 chart when it is set for daily. The Fast Stochastic also issued a sell signal for stocks.
Market Direction Outlook for August 20 2015
Last night I explained that the technical outlook differed from my own. This was because technical indicators look at the past to predict the future. They cannot look at a catalyst such as the Shanghai Composite Index collapsing to determine market direction. However I can, which is why yesterday I indicated the market was probably heading lower today.
For Thursday though we could see an attempt to bounce back, but overall stocks are heading lower. Whether they move lower on Thursday really does not matter. The outlook is down for stocks. The contrarian outlook is that if the majority of investors are bearish, then they will be wrong. While this is often true, it is not always the case. The market is facing incredibly strong headwinds and has been for weeks. The fact that it has held up as well as it has is interesting to say the least, but the market is NOT rising which it needs to do if the trend is not going to be lower. The sideways action we have seen for all of 2015 cannot last and eventually stocks will correct and fall until they find buyers. Tomorrow, stocks should close lower, but if they don’t they will either Friday or Monday. There are too many new lows and very few new highs. That can only lead lower until that ratio changes.
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