A number of factors led to the decline on Tuesday but in my opinion it was a delayed sell-off from Friday which was waylaid by a relief rally on Monday. I had expected a strong pullback on Monday and when it did not happen, I added to my market direction trade. That resulted in substantial gains today. The sell-off though seemed to run out of steam in the early afternoon. I had expected a rally over the lunch hour and early afternoon and then another drive lower into the last hour of trading. Instead the market commenced a rally around 1:30 and kept climbing into the close. So what should we expect on Wednesday?
Market Direction Closings For Sep 22 2015
The S&P closed at 1,942.74 down 24.23 but back above the 1940 support level even though during the day it fell to 1929.22 and was within 9 points of hitting the 1920 support. The Dow closed at 16,330.47 down 179.72 but well off the lows which took the Dow to 16,221.73 today. Basically the sell-off was almost reduced by about 40%. The NASDAQ closed at 4,756.72 down 72.23 but still above the 4,650 support level and during the day it failed to break below 4700, reaching 4716.91 before rallying back.
Advance Decline Numbers for Sep 22 2015
Volume today came in at 3.8 billion shares traded with 86% of all trades done to the downside. New highs on New York were just 3 while new lows came in at 215. The numbers show just how strong the selling was despite the market rebound in the afternoon and into the close. At 215 new lows the market direction still looks primarily negative.
Market Direction Technical Indicators At The Close of Sep 22 2015
Let’s review the market direction technical indicators at the close of Sep 22 2015 on the S&P 500 and view the market direction outlook for Sep 23 2015.
SPX Market Direction Technical Analysis for Sep 22 2015
Stock Chart Comments:
The most important event today was the drop of the 100 day moving average to below the 200 day. This is a major sell signal on the S&P 500. Now only the NASDAQ does not have any major sell signal as the 50 day is still above the 100 day and the 100 day is above the 200 day.
The 20 day simple moving average (SMA) is still falling and today’s close pushed the S&P below the 20 day simple moving average (SMA). All market internal signals are now pointing lower for the S&P.
The closing candlestick on Tuesday though indicates there is a chance for a rally on Wednesday before the market moves lower. The Bollinger Bands are setting up a Bollinger Bands Squeeze which is already underway, so a rally on Wednesday could indicate that the outcome of the squeeze is not entirely certain.
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 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 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 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: Momentum is negative and falling.
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 Sep 10. Today the buy signal lost more strength but remains positive.
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 falling toward being oversold.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal remains negative but is rising still despite today’s sell-off.
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 23 2015
Predicting market direction is never easy. The technical indicators are 5 negative and one positive. However of the 5 negative indicators, momentum is only slightly negative, the Ultimate Oscillator is nearing oversold which often signals a possible bounce and the Rate Of Change is negative but moving higher which would indicate the selling may be coming to an end.
Oct 8 is the unofficial start of the next quarterly earnings. Stocks rarely collapse heading into earnings but instead often will move sideways when they are in a correction ahead of the quarter earnings reporting period.
Therefore, technically there are signs the selling will continue but the candlestick at the close coupled with the rise of the rate of change seems to be indicating there is a chance of a move higher on Wednesday.
What I am personally expecting is some buying at the open, a move lower and then more buying and a flat to slightly negative or slightly positive close. I am not expecting a further large decline on Wednesday. The outlook then is to stay cautious and realize that the bias is lower for stocks, but that there are also signals that suggest we could see an attempt to move up on Wednesday. While I do not think it will last, a rally attempt is certainly not out of the question.
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