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Market Direction Outlook For Oct 22 2015 – Bias Is Lower

Oct 21, 2015 | Stock Market Outlook

The close on Tuesday pointed to a possible move lower for the indexes on Wednesday but with strength still showing in the technical indicators I felt stocks had a chance to push slightly higher. It was a mixed outlook for Wednesday but in the end stocks fell lower and the S&P fell below 2030 and 2020.

The problem remains revenue and earnings is not enough to excite investors and today the collapse of Valeant Stock on the back of accusations by short-seller Citron of “phantom sales” techniques to boost sales numbers pressure stocks, especially Biotech Stocks, lower.

There were though other winners and losers including GM Stock which shot up 5.8 percent, Boeing Stock which rose 2 percent, KLA-Tencor Stock which rose 19 percent and Chipotle Mexican Grill Stock which fell 5.66%. Meanwhile oil prices fell today by 2 percent as US inventories rose 8 million barrels more than double the forecast which prompted many analysts to predict oil will stay within a $50 to $70 per barrel range throughout 2016 and possibly late 2017.

Market Direction Closings For Oct 21 2015

At the end of the day the indexes closed at the lows. The S&P closed at 2,018.94 down 11.83 and below 2030 and 2020. The DOW closed at 17,168.61 down 48.30 after being up almost 100 points earlier in the day. The NASDAQ closed at 4,840.12 hammered again by Biotech stocks.

Advance Decline Numbers for Oct 21 2015

Volume on Wednesday rose to 3.6 billion shares. 77% of all trades were trading lower with 21% trading higher. 69% of all issues were moving lower. New lows came in at 40 and new highs pulled back slightly to 56.

Overall these numbers show a bias to the downside continuing to creep into stocks but there are still signs of strength.

Market Direction Technical Indicators At The Close of Oct 21 2015

Stock Chart Comments:

SPX Market Direction Technical Analysis for Oct 21 2015

SPX Market Direction Technical Analysis for Oct 21 2015

Once again the S&P was rebuffed as it tried to break to the 200 day moving average. Today it reached just 2037 before sellers pushed the index back. This marked the fourth day of the market being stalled.

The close today left the S&P with a bearish candlestick and the 200 day still leading the market. The 20 day simple moving average (SMA) today came close to meeting the 50 day but the 50 day is continuing to fall and is giving no indication that this rally has managed to turn it from down to up. This may indicate that the rally may be coming to an end.

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 was light support. Below that was 2050 which was also was 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 but is continuing to fall and strength is quickly leaving momentum to the upside.

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 Friday Oct 2. That signal is also quickly losing strength.

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 falling away from being overbought.

Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is positive but pointing sideways for stocks. This is probably fairly accurate as the market is indeed moving sideways. The Rate Of Change may be indicating that even if the market moves higher it will be uneven and primarily sideways.

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 pointing down for stocks and is still overbought.

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 also pointing down for stocks, and it is very overbought.

Market Direction Outlook for Oct 22 2015

Stocks really want to push higher but the repeated selling is having a negative effect. Stocks are now poised to move lower after breaking through the 2030 and 2020 level. The two stochastic indicators are pointing down for Thursday and those indicators, mixed with the market still being overbought are probably enough to justify changing the outlook to down for stocks for Thursday.

We may see a rally attempt in the morning to push back above 2020 but for now it looks like that will fail and the market will close lower than today’s close as the bias is changed to lower.

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