Friday’s outlook was negative for stocks, but a drop of over 1.5% for the S&P was not anticipated. Friday marked the biggest 2 day retreat since September. Investors appear to be giving the Fed’s interest rate increase a second thought. As well the price of oil fell on Friday. Oil pushed past $35.00 and many analysts discussed the price of oil returning to 2009 levels of $32.40 at the start of this week. Other reasons for Friday’s steep losses can be found in Apple, Disney and Boeing stocks, all three of whom declined big on Friday, making nervous investors even more nervous.
Advance Decline Numbers
Volume on Friday jumped to 6.73 billion. New lows rose to 227 but were still higher than Monday’s 52 week lows. 73% of all volume was moving lower on Friday.
The NASDAQ reached 3.79 billion shares and 70% of all trades were to the downside. New lows rose to 157 while new highs were just 39.
Market Indexes Closing Numbers
All indexes closed near their lows on Friday. The S&P closed at 2005.55 down 36.34. The Dow Jones closed at 17,128.55 down 367.28. The NASDAQ closed at 4912.08 down 79.47.
Market Direction Technical Indicators At The Close
SPX Market Direction Technical Analysis for Dec 18 2015
Stock Chart Comments:
Friday’s sell-off saw the S&P fall back below all major moving averages and close outside the Lower Bollinger Band. Normally this is a bearish signal. The candlestick at the close of trading on Friday suggests a possible rebound to start off Monday and then further selling. Meanwhile the 100 day moving average which had moved back above the 200 day moving average, turned lower on Friday and is again moving lower. If it moves below the 200 day moving average it will be very bearish for stocks.
Support and Resistance Levels:
These are the present support and resistance levels. Almost since the start of this year, these support levels have not changed. That is unusual for the stock market and is the first time since I started investing in the early 1970’s that the same support levels have been referred to for an entire year.
2100 was light support. Stocks have been unable to stay above this level and push higher on numerous occasions. It remains resistance.
2075 was light support. Below that is 2050 which was also light support. Stronger support is 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. Stocks continue to have trouble holding the 2000 level.
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 is now light 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: For momentum I use a 10 period when studying market direction. Momentum is negative and moving lower.
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 Friday Nov 10. The sell signal is gaining strength.
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.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is negative and moving lower.
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 down for stocks having issued a sell signal on Friday.
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 signaling down for stocks and it also issued a sell signal on Friday.
Market Direction Outlook for Dec 21 2015
For Monday the technical indicators are bearish. The S&P is resting just above the 2000 valuation. Technically looking at the indicators, the chance the market will fall through 2000 is high for Monday. After two days of heavier selling, especially the high volume on Friday, we should see some form of a rally take shape on Monday.
The technical indicator though point to any rally as failing. If that is the case then caution is warranted for Monday. Seeking protection and putting in place trades that profit from downside action remain the best choice although December is one of the better months of the year for stocks. Historically this December has been the worst December since 2008 for stock. That might not bode well for stocks for 2016. Let’s hope Santa may have something up his sleeve as we head into the shortened Christmas week.
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)
Market Direction External Links
IWM ETF Russell 2000 Fund Info
Market Direction SPY ETF 500 Fund Info