The outlook for Friday was for a bounce. I expected the nonfarm payroll numbers would be good which should push the Fed to raise interest rates in December. The markets reacted strongly on Friday and rallied hard. The second part of the outlook for stocks on Thursday was for more selling to enter the markets following a big rally higher. We had the rally on Friday with strong closing numbers. Now we get to see if the second half of the outlook will come true. Will we see selling return on Monday or Tuesday.
Index Closing Prices
All the indexes closed just off their session highs on Friday. The S&P closed at 2,091.69 up 42.07. The Dow Jones closed at 17,847.63 up 369.96. The NASDAQ closed at 5142.27 up 104.74. All three major indexes had strong days on Friday. This week we get to see just how crucial the recovery was.
Advance Decline Numbers
Volume on Friday was 4.17 billion shares. 62% of all volume by the close was moving higher. 37% of all volume was moving to the downside. 64% of all stocks on New York rose on Friday. But the number of new lows came in at 191 which was quite the jump for new lows. New highs were just 39.
On the NASDAQ volume was 1.8 billion shares. 77% of all volume was to the upside with 22% to the downside. New highs came in at 58 while new lows rose to 103.
The advance decline numbers are still not confirming much of a rally is about to get underway.
Market Direction Technical Indicators At The Close of Dec 3 2015
SPX Market Direction Technical Analysis for Dec 4 2015
Stock Chart Comments:
The rally on Friday pushed the S&P back above all major moving averages. The Bollinger Bands Squeeze is still underway but whereas on Thursday it appeared the Bollinger Bands Squeeze would end with Stocks moving lower, Friday’s rally could be the signal that the squeeze will send stocks higher. Again, the outlook for the squeeze remains unclear although the bias appears to be up rather than down.
On Friday the index retook all the support levels it had lost and closed at 2091.69 up 2.05% on the day.
Support and Resistance Levels:
These are the present support and resistance levels.
2100 was light support. Stocks have been unable to stay above this level and push higher on numerous occasions. It remains resistance.
2075 is light support. Below that is 2050 which is light support. Stronger support is at 2000 which had repeatedly held the market up throughout each pullback in January and February but failed under the waves of selling in the last correction. Stocks continue to have trouble holding the 2000 level.
Weak support is at 1970 while stronger support is at 1956 and technically it is more important than 1970 for the market. 1940 is light support. 1920 is now light support. 1900 is more symbolic than anything else.
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. So far 1870 has held the market up better than any of the other support levels aside from 2000 which held the market up for months before the collapse in August.
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 of 384.72 points or 18% from the all-time high of 2134.72. 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: For momentum I use a 10 period when studying market direction. Momentum is positive and rising to almost neutral.
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 on Friday Nov 10. The sell signal gained lost strength on Friday.
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 rising.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is negative but turned sharply back up on Friday.
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 is signaling down for stocks despite the rapid advance on Friday..
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 is signaling up for Monday after a sharp upturn on Friday.
Market Direction Outlook for Dec 7 2015
Friday was an important day but aside from the rally what actually has changed with the outlook? No much actually and investors may begin to worry about the Fed meetings next week and the chance of a rate increase for the first time since the Great Recession. If that happens the rally will stall.
The other problem is the advance decline numbers are poor. These numbers do not mean the rally cannot continue. They do however mean that any rally is suspect until we see the new highs pop above 125 to 150 daily. That is not happening.
For Monday it looks like stocks will open weak following Friday’s big gain. That is fine as long as stock witness just slight weakness. A drop back to 2075 would be damaging to the rally and another signal that the market is not strong enough to proceed with taking out 2100.
The technical indicators are mixed. 3 indicators are pointing higher and 3 are pointing lower. I am expecting Monday morning to be weak as investors take profits. Then the market direction should stabilize heading into the late morning or lunch hour. I am expecting a higher close. It does not need to be a lot higher but it does need to be higher. Overall the outlook looks solid for a weak advance.
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