This weekend I spent Saturday afternoon with some investor friends. We talked about the collapse of stocks on Friday and about an expected bounce for Monday before more selling resumed. One thing we all discussed was the collapse of stocks on October 19th 1987 which saw losses of of 22.6% on the Dow. This was known as black Monday. We wondered if today’s investors were ready for such an event today and what it could mean for economies and pensions. Let’s hope we won’t see that type of event again.
At the time of my writing this article the Shanghai Composite Index is down over 8% at 11:50 PM EST. It looks like the chance of a market bounce on Monday is next to none. The futures for the Dow are down 400 points at this same time. The futures could get worse or improve before the open, but the day looks ugly. For investors it will be a day to be careful, and put more protection in place.
Advance Decline Numbers for Aug 21 2015
Volume on Friday was 84% to the downside. There were no new highs on Friday. As explained prior, these types of numbers advise that a bounce back would be suspect. New highs must move back over 150 and new lows back to below 50 before any kind of sustainable uptrend can hold.
Market Direction Technical Indicators At The Close of Aug 21 2015
Let’s review the market direction technical indicators at the close of Aug 21 2015 on the S&P 500 and view the market direction outlook for Aug 24 2015.
Market Direction Technical Analysis for Aug 21 2015
Stock Chart Comments:
The index collapsed through the important technical support at 2000. This is major support for the S&P. This break may be revisited but with the futures showing strong selling pressure, it is unlikely. Both the 50 and 100 day moving averages are turning lower. The 20 day is falling below the 100 day.
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 has repeatedly held the market up throughout each pullback in January and February but failed under the waves of selling on Friday.
Weak support is at 1970 and while many analysts believe the market may hold 1970, the stronger support is at 1956 and technically it is more important than 1970 for the market.
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.
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 rapidly.
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 gained strength again on Friday.
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 oversold.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal remains negative and is moving into a strong negative numbers that are often associated with bounce backs.
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 oversold.
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 down signal for stocks and is deeply oversold.
Market Direction Outlook for August 24 2015
The chance of a bounce on Monday is probably gone. Looking at the futures for Monday’s open late Sunday night, the Dow is 400 points lower. The S&P is 47 points lower and the NASDAQ is 168 points lower.
These numbers will probably change one way or the other by the time the market opens but overall the outlook for Monday is for stocks to close down big. It looks like Monday will be ugly for investors.
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