Oil has had its best week in quite some time and that translated into higher prices this week with stocks staging another impressive rally on Friday. So far with the quarterly results most companies revenue numbers are down but earnings have been decent and that has also helped to lift stocks higher. With the S&P back at the 1940 level, many short sellers are covering which helped on Friday to boost stocks into the close.
As well, the decision by the Bank of Japan to join the “negative” interest rate club of nations places the world’s third largest economy into the camp of trying to force banks to loan more money to stimulate the economy. That move by the Bank of Japan has many analysts moving to the camp of no further interest rate hikes from the Federal Reserve this year. With the winds suddenly turned from bearish to bullish stocks look set to try to move higher.
Index Closing Prices
All the indexes closed at their highs on Friday. The S&P closed at 1,940.24 up 46.88. The Dow Jones closed at 16,466.30 up 396.66. The NASDAQ closed at 4,613.95 up 107.28.
Advance Decline Numbers
Volume on Friday reached 5.51 billion for one the heaviest days of the past 6 months. New highs jumped past new lows with 68 new highs and just 41 new lows as investors jumped into bottom fishing.
Of the volume traded 91% was to the upside for one the largest advance days since the August correction ended.
These numbers show the market is set to try to reclaim the 1980 level and try again to take out 2000.
Market Direction Technical Indicators At The Close
Market Direction Technical Analysis for Jan 29 2016
Stock Chart Comments:
Stocks closed at their highs on Friday. The closing candlestick is bullish for another day and the SPX has retaken the 1920 level which was the first goal. The second goal is 1980. If we get a close above Friday’s close on Monday, the second goal should be reached early in the week. The S&P is now above the 20 day moving average.
The 50 day moving average is continuing to fall below the 100 day which is because it is a delayed signal. It may not impact stocks at this point. The Bollinger Bands Squeeze I mentioned is starting to form which could possible signal a move to take out 2000. Most analysts at present do not believe the market can retake and hold the 2000 level. I think it is too early to tell how strong the rally up could be. With 1940 retaken on Friday the next level of resistance is 1956.
Support and Resistance Levels:
These are the present support and resistance levels. These levels have not changed since January 2015. 2100 was light support. Stocks have been unable to stay above this level. It remains resistance.
2075 was light support and is also resistance. Below that is 2050 which was also light support and now resistance.
Stronger support was at 2000 which is now resistance.
Weak resistance is at 1970 while stronger resistance is at 1956 and technically it is more important than 1970 for the market. 1940 was light support and was retaken on Friday. 1920 was light support and is also resistance. 1900 is more symbolic than anything else.
1870 and 1840 have continued to support the market and the 1820 level is light support but again held up well in the sell-off of the last two weeks.
1775 and 1750 are both 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 all-time high of 2134.72. This would be the biggest correction since 2011 plunge of 271 points for a 20% pullback. A pullback to 1750 from the all-time high would be a drop of 384 points for a decline of 18%. 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 has risen to positive but despite the huge move on Friday it did not move up by much. This is a bit concerning at this point in the rally.
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 buy signal on Jan 28. The buy signal was confirmed 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 and rising. The reading at the close was negative 6.65 which is still oversold and is supportive of a bounce higher.
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 up 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 has a strong up signal in place for Monday.
Market Direction Outlook for Feb 1 2016
Technically the S&Phas only 1 negative indicator. All the remaining indicators are positive and flashing buy signals or up signals. The break above the 20 day moving average is also important for the market. It has not been above the 20 day moving average since Dec 31. January ended as the worst January since 2009. February though looks like it is starting off better.
The sideways pattern that held up last week has broken to the upside. Stocks should move higher as long as oil co-operates. Monday Feb 1 still has the bias to the upside. There could be a bit of weakness to start the day as investors take some profits but if oil holds steady, the market should close higher on Monday.
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