Wednesday was yet another interesting day. Wednesday saw the market attempt another bounce only this time the bounce held on. The morning open saw strong momentum which faded by early morning and into the lunch hour. The market drifted below 1900 but as the early afternoon started the market lifted and pushed back above 1900. This seemed to embolden investors who by the mid-afternoon had the S&P well above 1900. Whether it was short-covering that juiced the remaining two hours of trading I don’t matters. The market ended up with its third best rally in history. Whether this means that the correction has found a bottom is probably highly unlikely at this stage but it does show there are some buyers ready to put some capital to work.
Until proven otherwise, this remains a bull market in correction. At the time of my writing this market direction outlook the Shanghai Composite Index is set to open up 1.7%. It’s not much considering the collapse but perhaps their market can begin to heal somewhat and with it the panic that has swept global markets.
Advance Decline Numbers for Aug 26 2015
Perhaps surprisingly, 57% of the total volume was still moving lower and new lows came in at 243 while new highs were just 2, but considering the pummeling stocks have taken there won’t be any new highs for sometime yet. The new lows were down somewhat but still at 200, the correction isn’t over yet.
Market Direction Technical Indicators At The Close of Aug 26 2015
Let’s review the market direction technical indicators at the close of Aug 26 2015 on the S&P 500 and view the market direction outlook for Aug 27 2015.
SPX Market Direction Technical Analysis for Aug 26 2015
Stock Chart Comments:
The index losed right near the highs for the day and back inside the Lower Bollinger Band. Meanwhile the 50 day moving average is crossing over the 100 day moving average which is a major sell signal, but in this case it could be late. The 20 day simple moving average (SMA) is crossing below the 200 day moving average which is another sell signal.
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 last Friday.
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 has 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 aand trying to rise back up. In this collapse momentum was the worst it has been since 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.
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 deeply oversold. It is rising but just slightly as it was so deeply oversold it will take another up day for the Ultimate Oscillator to begin a recovery.
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 reading two days ago was extremely negative which is almost always followed by a bounce. Today’s reading is still quite negative and normally continues to see more bounce to the rally.
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 and is deeply 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 is pointing up for stocks and is deeply oversold. Both stochastic indicators are pointing to a bounce.
Market Direction Outlook for August 27 2015
No one can judge when a correction is ending or just in a recovery before more selling starts. Investors are nervous and cautious but some capital was put back to work in stocks. We always hear about investors who jumped in at the bottom but honestly few do. Today’s big rally could end tomorrow but the indicators are still deeply oversold and one more day to the upside from such a steep drop is certainly not uncommon. If China can find its footing on Thursday, the North American Exchanges should be able to move higher, but I would expect some selling at the open on Thursday and then the markets should try to stabilize for a second day.
The kind of damage we have seen will take time to recover. Stay cautious but if you are like me and have some cash available, I am picking through some of the rubble and did a few trades today in Royal Bank Of Canada Stock, Johnson and Johnson Stock and Bank of Montreal Stock. All trades were small but I plan to do more again on Thursday. If Thursday ends positive I think Friday may see more selling as a lot of investors will not want to hold over the weekend. That’s just an opinion and not based on technical indicators but personal experience from years of trading through corrections and 5 bear markets.
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