A number of factors caused the drop on Monday. I had expected a bit of a rally in the morning, especially at the open and then a pullback to lower prices. Instead the market fell from the open and by 2:30 it was sitting at 1828.46 having broken through 1860, 1850, 1840 and 1830. The rebound rally was fast and all in the last hour.
Among the factors causing the drop was the price of oil breaking through $30.00 once again and closing below it. However there were other factors in particular a growing concern among investors that the banking sector may be back in trouble. The shadows of the Credit Crisis of 2008 to 2009 are long and investors have a hard time shaking them off. Banking trouble is not new to investors but even the hint of trouble can cause many to panic. At times on Monday there was an air of panic, especially in the mid-afternoon with the lunch hour rally had failed. None of the action on Monday points to a bottom being formed.
Index Closing Prices
The indexes closed well off their lows on Monday. The S&P closed at 1853.44 down 26.61. The Dow Jones closed at 16,027.05 down 177.92. The NASDAQ closed at 4,283.75 down 79.39.
Advance Decline Numbers
Volume on Monday was among the highest in months with 5.66 billion shares traded. By the close, 80%% of all volume was moving to the downside despite the rally back. New lows came in at 446 and new highs were 53.
New lows jumped today but still were below the prior three large declines to the 1830 level since August. However whether this points to possible bottom being formed is very doubtful.
Market Direction Technical Indicators At The Close
SPX Market Direction Technical Analysis for Feb 9 2016
Stock Chart Comments:
The S&P closed below the 20 day simple moving average (SMA). The 50 day is continuing to fall away from the 100 day leaving the market with a strong sell signal as the 200 day leads the market presently. The Bollinger Bands Squeeze is continuing and is now looking more that it may end with the S&P falling.
The closing candlestick is more bearish than bullish for Tuesday. The S&P dropped to the 1828 level before buying increased and pushed stocks back up to close well off their lows. However the trading higher was on light volume and overall may have been more computer driven and short covering with the S&P down at 1828.
Support and Resistance Levels:
These are the present support and resistance levels. These levels have not changed since January 2015. 2100 is 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 and reached again today. 1920 was light support and is back as resistance. 1900 is more symbolic than anything else.
1870 is resistance. 1840 continues to be support. 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 is negative.
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 is faltering and could turn to a sell signal shortly.
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 negative.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is negative and back moving sideways. The reading at the close was negative 4.61 up slightly from Friday’s close but not significant enough to warrant much change in the outlook from down.
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.
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 pointing down for stocks.
Market Direction Outlook for Feb 9 2016
Technically the S&P still has 5 negative signals that are gathering strength and only MACD is positive, but barely.
The problem facing the market are becoming bigger, especially with many companies reporting problems gaining credit. The announcement by Deutsch Bank that basically said they have “enough capital” for major debt sent a shiver through a lot of markets and assisted the move lower. The collapse of the price of oil is finding its way into the banking sector now and that is leading to more weakness.
Any rebound rally at this point will fail. A break of 1820 is more likely technically speaking than a break of 1880. The market direction outlook for Tuesday is lower for stocks.
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