The outlook for stocks for Monday was for a general decline but nothing major. Instead oil took another fall and that combined with a poor reading from the Insitute for Supply Management, less than exciting personal spending numbers and June construction spending which was just 0.1% or basically flat, sent stocks tumbling lower. The S&P easily took out the 2100 level and fell through the 50 day and then the 100 day moving averages before turning around and closing right back at the 50 day moving average.
While I had expected a move lower, I did not expect the plunge that stocks took, especially on the back of oil and the drop in Apple Stock. I had indicated in yesterday’s market direction outlook that I expected more weakness on Tuesday. Let’s take a look and see if more weakness should be expected.
Advance Decline Numbers for Aug 3 2015
Volume fell again on Monday to just below 3.5 billion shares traded. New highs fell to 66 while new lows jumped to 167. 71% of all trades were moving lower on Monday. Overall while the day belonged to the bears.
Market Direction Closings For Aug 3 2015
The S&P closed at 2,1098.04 down 5.80. The Dow closed at 17,598.20 down 91.66. The NASDAQ closed at 5,115.38 down 12.90..
Market Direction Technical Indicators At The Close of Aug 3 2015
Let’s review the market direction technical indicators at the close of Aug 3 2015 on the S&P 500 and view the market direction outlook for Aug 4 2015.
Market Direction Technical Analysis for Aug 3 2015
Stock Chart Comments:
The 20 day simple moving average (SMA) is now up to the 50 day moving average. The most notable event today was the ease with which the SPX fell through the 50 and then the 100 day moving averages. While the S&P did not take out the 2075 level or come close, there was a distinct weakness as buyers dropped quickly once selling started. This is what causes stocks to fall more than normal. The nervousness among investors continues to be a major problem for stocks as the market continues to try to break free of the range it has been stuck in for the past 6 months. Today’s closing candlestick often signals a bounce for the following day or a stalling of the selling. A lot though would depend now on China as the signals of a Chinese economic slowdown are definitely evident. This is obviously weighing on investors. There are numerous analysts who believe that the Chinese stock market will double in the next 12 months and they could be right but I would prefer to err on the side of caution and wait for clear signals that Shanghai is recovering before making any move in that direction.
Support and Resistance Levels:
These are the present support and resistance levels and there are still no changes.
2100 is light support. Stocks will have to stay above it to change it back to solid support and convince investors that the market has staying power and will push well beyond 2100. That still does not appear to be the case.
2075 is light support. Below that is 2050 which is also light support. Stronger support is at 2000 which has repeatedly held the market up throughout each pullback in January and February.
Weak support is at 1970. Stronger support is at 1956.
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 from the most recent high. 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.
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 July 30 but did not confirm the signal on Friday or Monday.
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 still positive and rising to overbought.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is still positive but turning sideways.
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 signaling downfor 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 issued a sell signal at the close of trading on Monday.
Market Direction Outlook for August 4 2015
Stocks could see a bounce back on Tuesday following today’s surprising drop however there are too many technical signals to the downside to ignore. Therefore for Tuesday a bounce is possible but I would expect more downside even if there is a bounce. Staying cautious and only taking on small positions I believe is definitely warranted. The markets look like they are intent on moving lower. If they do not do this on Tuesday they most likely will move lower Wednesday.
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