When I indicated on the weekend that Monday would be down to start off the year I had no idea the day would end down as large as it did. With the halting of trading on the Shanghai Composite Index other markets globally sold off in sympathy as many investors raced to exit their positions and return to cash. This pushed up the US dollar, pushed down bond prices and raised yields and increased the price of gold slightly.
The morning saw the heaviest down volumes and the biggest declines as well as some of the better trade opportunities depending on your trading style. My trades are focused on selling options for premiums for the morning definitely had some very good trades. tt
The move back higher in the afternoon was exceptional and as explained to members during the day, the 2000 level held up the market’s decline quite well.
The 2000 level was significant all of 2015 and has continual been revisited month after month since Jan 2015. It was interesting to watch the market action today as the heaviest selling also saw some of the heaviest buying so obviously a lot of bulls felt that today’s sell-off was not the start of something far larger. Indeed I had felt that the later afternoon, particularly the last hour could see some heavy selling and a stronger move lower but obviously this was not the case as investors bought into the later afternoon closing the S&P not only above 2000 but back at the 2012 level. I had expected 2005 to be the top end for the close and was expecting a end of day close nearer 2000.
Advance Decline Numbers
Volume on Monday was not overly huge at an average of 4.27 billion shares on New York. Of that volume 71% was to the downside however during the morning it was over 90% to the downside. By the close 28% of all trades were to the upside. 67% of all stocks on New York were falling by the close and new lows were 145 with new highs just 16.
Market Indexes Closing Numbers
All indexes closed well off their lows. The S&P closed at 2,012.66 down 31.28. The Dow Jones closed at 17,148.94 down 276.90. The NASDAQ closed at 4903.09 down 104.32.
Market Direction Technical Indicators At The Close
SPX Market Direction Technical Analysis for Jan 4 2016
Stock Chart Comments:
The first trading day of 2016 ranks up there among worst trading starts to a new year as the S&P and NASDAQ has their worst start since 2001 and the Dow Jones Index since 2008 which had a loss of 1.7% for the first trading day of 2008. Today’s loss was 1.6% so it is certainly close.
Chart wise, the 2000 level was broken and buyers bought in and pushed the market back up taking it well off its lows. That a good sign. Meanwhile the SPX still closed below all major moving averages and near the Lower Bollinger Band after breaking through the Lower Bollinger Band in the morning.
The 20 day simple moving average (SMA) is still falling and today reached the 100 day moving average. The closing candlestick was bearish but often this candlestick will see a bounce, so short-term it can be bullish for a day or two.
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. Stocks continue to have trouble holding above the 2000 level since the August 2015 correction.
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 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 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 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 turned negative on Thursday but note how it did not move lower despite the heavy selling. The afternoon rally back pushed the momentum indicator sideways. This is another signal we could see a bounce back tomorrow.
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 Dec 28. On Thursday the buy signal was weaker. Today, the buy signal changed to an unconfirmed sell signal.
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 but again, just like momentum, the Ultimate Oscillator turned sideways not lower, another signal of a possible up move on Tuesday.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is negative and falling back. Again, the move lower was only slight, another signal we could see a bounce on Tuesday.
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 on Thursday and confirmed it today. The outlook is lower for Tuesday.
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 sell signal on Thursday, confirmed it today and while the outlook is down, the readings also point to the possibility of a bounce back.
Market Direction Outlook for Jan 5 2016
A lot of the selling to start 2016 off was a knee jerk emotional reaction to the Shanghai Composite Index sell-off which saw their market halt after falling 7 percent. No matter how hard governments attempt to stop selling, halt and suspensions usually lead to more selling as investors remain nervous when governments intervene with halt and stalling tactics. Overall markets in general will eventually find their own balance. The drop in the Shanghai Composite Index was a direct result of the expiration of a specific selling ban among major market participants and traders as well as economic stats that point to the slowdown in the Chinese economy continuing to progressively “get worse”.
Technically the indicators have shifted to a negative outlook for the markets, but as you can see from the overall technical outlook there are many signs that we could see a bounce attempt on Tuesday and then selling. This attempt won’t mean the selling is over in my opinion, but I think the sell-off today was overdone and a bit early for the month. I am still expecting a lower move later this month, so the bounce back from 2000 is not overly surprising today.
This ends the chance for a Santa Claus Rally. Since 1950 there have only been 13 prior times when there was no Santa rally and of those times only 1982 saw a gain. The rest of the time the market saw losses or was flat.
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