The outlook for Monday for stocks was for some selling to enter the market which considering that the rally back from the plunge of Monday Aug 24 recovered 6%, was not surprising. The drop today in the S&P was just 0.84%. The NASDAQ lost 1.07% and the Dow 0.69%. Overall the losses were only moderate. The price of oil surged for a third straight day and closed just below $50.00.
Most analysts felt the drop on Monday was caused by Saturday’s comments from Fed Vice Chairman Stanley Fischer who indicated that as the US dollar declines in coming months, inflation should pick up allowing the Fed to increase interest rates. This caused investors some nervousness on Monday who felt that a Fed rate increase was off the table for September. Now they wondered if the Fed rate will come in September after all. No matter whether it is September or December I believe the market will pullback on any rate increase no matter how good the US economy may appear simply because a rate increase causes uncertainty among the economy and the market. It is uncertainty that caused investors to sell.
Advance Decline Numbers for Aug 31 2015
Total volume was reasonably good on Monday with 3.9 billion shares traded on New York. New lows were modest at 36 but that is a bit of a rise from the morning. New highs were just 4. Down volume comprised 55% of all trades. Up volume was 44%.
Market Direction Technical Indicators At The Close of Aug 31 2015
Let’s review the market direction technical indicators at the close of Aug 31 2015 on the S&P 500 and view the market direction outlook for Sep 1 2015.
Market Direction Technical Analysis for Aug 31 2015
Stock Chart Comments:
The index on Monday moved lower. Friday’s close may signal the end of the recovery rally. We will know in a few days. The 50 day moving average continued to slowly fall below the 100 day and both the 50 and 100 day moving averages are falling toward the 200 day moving average and within a day or two could cross below it or certainly reach it. The Bollinger Bands remains wide with a slight bias to the downside indicating that the market’s next move could be back lower.
The short-term indicator, the 20 day simple moving average (SMA) is continuing to slide without pause.
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.
2075 was light support. Below that was 2050 which is also was light support. Stronger support was 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.
Weak support was at 1970 while stronger support was at 1956 and technically it is was more important than 1970 for the market. 1920 and 1900 have very little if any 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.
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: Momentum is negative back falling. It is still strongly 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 sell signal on Aug 19. That sell signal remains strong today and is why protection should continue to be considered.
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 still trying to rise.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal remains negative but trying to climb back. The rate of change is strongly negative at minus 6.26 and is turning lower. It is signaling more downside is ahead for equities.
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 up for stocks but is starting to turn sideways.
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 up for stocks but it is turning down and one more day of weakness will generate a sell signal from the Fast Stochastic..
Market Direction Outlook for Sep 1 2015
The technical indicators show that the oversold condition of the market is over. 4 of the 6 indicators are negative and 3 of the 4 negative indicators are strongly negative. Of the two up signals, both of them the stochastic indicators, one is turning lower and could issue a sell signal as early as Tuesday or Wednesday. Therefore technically the outlook is lower for stocks.
All the indexes had a poor month in August with the Dow losing 6% making it the worst monthly drop since 2010.
September 1 has a mixed historical pattern. On the last 19 years the S&P has been up 12 times. However of the last 6 years the S&P has been down 4 times. Investors remain worried and nervous. September is a terrible month historically for stocks. The news from China this evening is adding to the volatility with news that their official manufacturing purchasing managers’ index fell to 49.7 in August which is a signal of contraction when it is below 50. Added to that is the news that the Chinese government rounded up 200 people for fear or rumor spreading about the Shanghai Composite Index. This is their new tactic to try to support the index but if anything, it will make investors even more nervous.
With the oversold condition gone, we could see the market try to rally in the morning at or near the open but the outlook appears weak with stock set to fall still lower by the close. Protection remains warranted.
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