The outlook for Tuesday Sept 1 was for stocks to fall and protected was warranted. It was a tough day for investors with the S&P down 58.33 points, the Dow down 469.08, the NASDAQ down 140.40 and the IWM ETF down 3.3. But during the late afternoon the losses were actually higher.
Tuesday’s plunge was all China again. With the slowdown in China showing definite signs of a more serious weakness than first thought, global markets dropped which unnerved investors here. Once markets opened the selling was steady and grew in intensity as the day wore on. Many investors had been buying stocks in the past couple of days as the rally moved higher. Many were now selling as the market fell back.
Advance Decline Numbers for Sep 1 2015
Total volume was stunning to see. The down volume was almost 4.2 billion shares on New York and up volume just 180 million. 85% of all stocks on New York were declining, but new lows were just 108 as many stocks failed to break down to the levels seen on August 24 when massive selling struck the markets. New highs were just 4. These numbers are definitely bearish but not as deeply negative as one would think. Unless selling continues, the new lows numbers today at 108 show that many stocks are trying to hold rebound levels from the rally back from the Aug 24 collapse.
Market Direction Technical Indicators At The Close of Sep 1 2015
Let’s review the market direction technical indicators at the close of Sep 1 2015 on the S&P 500 and view the market direction outlook for Sep 2 2015.
SPX Market Direction Technical Analysis for Sep 1 2015
Stock Chart Comments:
The index on Tuesday took another major dive and is setting up a very bearish stance. The 50 day is just below the 100 day and both the 50 day and 100 day have fallen almost to the 200 day. If they cross the 200 day it will be a very strong bear signal and the first such signal since 2011.
The short-term indicator, the 20 day simple moving average (SMA) is continuing to slide without pause. The concern now has to be the decline of the 50 and 100 day to the 200 day moving average. Protection is definitely warranted as all indications are pointing to the 200 day being violated.
As well the index is gyrating strongly setting up more strength to the downside than the upside. This must end quickly or stocks will tumble lower. Selling breeds more selling and buyers simply keep moving lower. This panics investors more and they chase buyers lower to sell out of their position. This is a time to stay with quality stocks only and raise cash levels where possible.
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 and falling strongly. Readings are the worst this year and the worst since the fall of 2011.
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 positive and rising.
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 8.78 it is pointing to more downside for stocks. However these kinds of readings are often associated with a market set to bounce. But there is no oversold condition yet which could mean more downside lies ahead before a bounce will be found.
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.
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 Sep 2 2015
Only the Ultimate Oscillator is positive. All the other indicators are pointing lower and many are showing signs of stress with very strong negative readings. These types of readings are associated with a market in panic. While the market is once more heading toward being oversold there are still signs that stocks will head lower.
Presently the Ultimate Oscillator is pointing to a possible rally. That means we could see a rally and then more selling. Indeed the futures this evening are showing the Dow possibly jumping 150 points. After such a big drop again today and on the back of last week’s plunge and rally, a rebound rally is definitely possible. But I doubt it can return the market to a strong upward stance unless a new catalyst to the upside appears. A rally though could last more than a day followed by more selling, but personally I think the chance of a sustained rally is very limited presently.
For Wednesday don’t be surprised by a rally in the morning from the open but I think the outlook remains lower for stocks. If not lower on Wednesday, then lower on Thursday. Protection remains warranted.
Stay FullyInformed With Email Updates
Market Direction Internal Links
Profiting From Understanding Market Direction (Articles Index)
Understanding Short-Term Signals
Market Direction Portfolio Trades (Members)