Monday saw the S&P try to rally but stumble and fall to 1901, almost breaking the 1900 level short before 2:00 PM. A late day rally managed to recover the market and close the index up 1.64 at 1923.67 but overall the action was very bearish.
Advance Decline Numbers
Volume on Monday was average at 4.61 billion shares traded on New York. New 52 week lows rose to 606 the highest level since the August 24 panic when there were 1230 new lows. New highs were just 11 today. The NASDAQ saw 491 new lows and just 12 new highs.
Sellers are continuing to dominate markets despite the extremely oversold conditions. These numbers are a clear warning that the market has a strong chance to fall to 1870 shortly.
Market Indexes Closing Numbers
All indexes closed well off their lows. The S&P closed at 1,923.67 up 1.64 The Dow Jones closed at 16,398.57 up 52.12. The NASDAQ closed at 4637.99 down 5.64.
Market Direction Technical Indicators At The Close
SPX Market Direction Technical Analysis for Jan 11 2015
Stock Chart Comments:
The S&P is still trending below the Lower Bollinger Band but today’s action while very bearish still managed to “hang onto” Friday’s close but it set a new low. The new low today must hold this week otherwise the market is ready to fall to 1870. The closing candlestick is often a reversal signal but definitely not always. The 50 day simple moving average (SMA) is turning down and ready to cross below the 200 and 100 moving averages. This would signal a move lower than 1870 and a new leg down for the market. Today’s bounce off the 1900 level is important but it is not really support. Instead, 1900 is more symbolic than anything else. Investors love these round numbers to base trading against. Today’s drop to 1900 showed that as stocks bounced off it and closed back above Friday’s close.
Overall though the action today was very bearish with the market building strength to the downside throughout almost the entire day following a brief morning rally attempt at the open.
Support and Resistance Levels:
These are the present support and resistance levels. These levels have not changed since January 2015. That is unusual for the stock market and is the first time since I started investing in the early 1970′s that the same support levels have been referred to for what is now more than an entire year.
2100 was light support. Stocks have been unable to stay above this level. It remains resistance.
2075 was light support. Below that is 2050 which was also 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 in August and September and again failed to hold under last week’s selling pressure. Stocks continue to have trouble holding above the 2000 level since the August 2015 correction.
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 is now resistance. 1920 is light support but cannot hold determined selling from breaking through. 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 2015.
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 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 on Monday stayed strongly negative but moving sideways and not dropping further despite the market falling to 1900.
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 Jan 4. That sell signal continued to strengthen on Monday.
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 and oversold but is trying to bounce.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is negative and took a sharp turn lower last week. Today it ended the day trying to recover and turn back up.
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 lower for stocks and is deeply oversold. The sell signal at the end of the day is nearing a buy signal.
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 issued a weak buy signal today at the close.
Market Direction Outlook for Jan 12 2016
The market tried to rally and failed. The failure was primarily because the rally attempt was all technical in nature without any actual conviction from buyers. Indicators tonight show the market still deeply oversold but with sellers dominating stocks. The Fast Stochastic issued a buy signal at the close today and the Slow Stochastic is on the verge of a buy signal, but that is common when the market is so deeply oversold.
Technically the market looks weak and while a bounce could occur on Tuesday as it has tried both Friday and Monday, the outlook is still for stocks to fall to test 1870 from where it will decide whether to fall lower or end the correction. With such high new lows it would be rare to see the markets suddenly recover and climb back to 2000 and then higher.
Oil fell to $31.44 today and after hours a number of analysts are predicting oil will not just break through $30 but fall to $20 this year. $20 oil will create havoc in economies of many countries, not just middle eastern economies. That havoc will lead to a much slower pace of economic growth at a time when much of the world is already in a period of slow growth. It would be unusual to think the rest of the world will slow even more but not the US. The reports tonight of even lower oil prices coming will weigh on stocks tomorrow.
Alcoa Results
Alcoa’s revenue fell just short of what was expected with sales down 18 percent. Revenue came in at $5.25 billion but earnings came in at 4 cents versus estimates for 2 cents by most analysts. After hours the stock jumped 2 percent and then moved lower. I believe these numbers will not assist any kind of rally for Tuesday. As the unofficial start of the next quarterly earnings season begins with Alcoa, their results if anything will probably add weight to the bearishness of the market.
The outlook then is that a rally is always a possibility but it cannot be sustained. The market is still preparing to fall to 1870 as the first initial stop in what is an ongoing correction.
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