Two things helped stocks on Tuesday. The first was the rise in the price of oil and many analysts remain very bearish. The rise was the best move in weeks for oil. The second was a revised GDP figure which showed the US economy grew at 2 percent rather than the expected 1.9 percent. While this is just a ten of a percent higher it is still higher and that is significant enough to assist stocks in climbing higher. Meanwhile volumes are starting to decline as stocks head into the Christmas holiday which could make further advances more difficult or could actually boost them on thinner volume. After two days of rallying should we be looking for Santa or has he already started his rally for the year?
Advance Decline Numbers
Volume on Tuesday was a decent 3.5 billion which is fairly high considering the closeness to the upcoming holidays and Thursday’s half day. Of those trades 80% were to the upside. For the first time in weeks, new lows pulled back dramatically to just 67. New highs came in at 22, up slightly from Monday. 74% of all issues were advancing. The NASDAQ volume was low at 1.5 billion shares and numbers were not as bullish as on the SPX. 68% of all volume was to the upside and 62% of all stocks were to upside. There were though 90 new lows and just 28 new highs but many of the new lows were less known and smaller capitalized stocks. These numbers on both the S&P and NASDAQ point to a further advance for Wednesday.
Market Indexes Closing Numbers
All indexes closed just off their highs. The S&P closed at 2038.97 up 17.82. The Dow Jones closed at 17,417.27 up 165.65. The NASDAQ closed at 5001.11 up 32.19 and back above 5000.
Market Direction Technical Indicators At The Close
SPX Market Direction Technical Analysis for Dec 22 2015
Stock Chart Comments:
Tuesday saw the S&P continue Monday’s advance moving higher but still below all major moving averages. The closing candlestick is somewhat bullish for Wednesday. The 100 day continues to trend sideways below the 200 day moving average. Overall the moving averages are bearish with the 50 day trying to leading the market but with the 200 day and then the 100 day stubbornly staying sideways and not reverting back to a normal view of the 50, 100 and then the 200 day moving averages. Meanwhile the 20 day simple moving average (SMA) fell below the 50 day moving average signaling down 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 and rising.
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 was weaker on Tuesday.
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 rising.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is negative and rising.
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 and refusing to give up the sell signal. This could mean a weaker day lies ahead for Thursday or possible early next week after the Christmas holiday.
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 up for stocks and it issued a buy signal today at the close which ends the sell signal it generated on Friday.
Market Direction Outlook for Dec 23 2015
Two days before Christmas and usually we begin to see signs of a possible Santa Claus rally. This rally has been steady for years so a break from that tradition would point to weakness for 2016. The last Santa Claus rally that failed to appear was in 2007. The technical indicators have just 1 up signal and all the rest are negative but among the negative indicators, most are rising which could be signaling the continuation of this two-day rally.
There is a high degree of bearishness in the signals and in the market itself. However over the past two days the Dow Jones Transport Index has been climbing and is now back above the August lows but still well within a longer term downtrend. Still, having the transport index moving higher is assisting the rally and there is room for this index to move still higher.
Thursday is just half a day and Friday is the Christmas holiday so tomorrow is the last full day of trading for the week. Volumes are sure to be lower. Therefore the open is important on Wednesday.
Look for some weakness to develop on Wednesday after two days of rallying, but if the open on Wednesday is higher than Tuesday’s close of 2038.97, look for the S&P to continue its advance and retake 2050. This could set up next week for further advances.
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