The outlook for Wednesday was for a sideways market with a bias to the upside. In my outlook last night I discussed Fed Chair Janet Yellen who was speaking today and testifies on Thursday ahead of the nonfarm payroll numbers on Friday. All of this can impact the market.
Wednesday saw a strong ADP number which would suggest that the nonfarm payroll numbers on Friday will be strong as well. All of this points to a rate increase in December. Currency markets reacted to her comments today including the US dollar which rose against many currencies. This depressed the price of oil, pushing it below $40 for the first time since August. While all this was happening the media reported that the probability of Fed rate hike in December had risen to 75%. This seemed to hurt investors who’s confidence in the morning was shaken by the ADP numbers. By the afternoon the media was filled with the shootings in California and the market tanked.
Advance Decline Numbers
Volume on Wednesday was 3.9 billion shares with 78% of all volume by the afternoon, moving lower. Numbers in the morning were not nearly as bearish but as the market fell lower in the mid-afternoon, volume to the downside quickly built. New lows came in at 117 while new highs were 57.
On the NASDAQ volume was 2 billion shares. 34% of all volume was to the upside with 65% to the downside. New highs came in at 93 down just slightly from Tuesday. New lows rose just slightly to 66 but it was the third day in a row of rising new lows.
Market Direction Technical Indicators At The Close of Dec 2 2015
SPX Market Direction Technical Analysis for Dec 2 2015
Stock Chart Comments:
The S&P close on Wednesday at the 10 day simple moving average (SMA). It is still above the 3 major moving averages. The 100 day moving average is moving higher and away from the 200 day. The 50 day moving average is quickly climbing and should cross the 200 day moving average in a couple of days. This will be another strong up signal when it happens. The 50 day moving average is also moving above the Lower Bollinger Band which signals that the market should be able to continue to move up.
The S&P is still in a Bollinger Bands Squeeze and the direction the S&P will take out of the squeeze is not entirely clear. Originally the direction looked to be higher while at present it appears neutral to lower.
The market fell back through the 2100 on Wednesday but closed above 2075 which is light support.
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 on numerous occasions. It remains resistance.
2075 is light support. Below that is 2050 which is 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 positive but falling.
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 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 falling. It is no longer overbought.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is negative and falling signaling the next move for the index will be 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 and is overbought.
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 sharply down for Thursday and it too is overbought.
Market Direction Outlook for Dec 3 2015
Technically the market took quite a hit today when it fell through 2090, 2080 and reached 2077. Yesterday the technicals were 5 to 1 positive. Tonight they are 5 to 1 negative and even the only positive indicator, momentum, is turning lower. So what should we make of this? It could be a reverse of the uptrend but that seems not likely at this point in December. It could be a reaction to the California shootings, the plunge of oil, the ADP numbers or the likelihood of an interest rate increase this month by the Federal Reserve. We won’t know for a couple of days however the outlook for Thursday is negative for stocks.
That though does not mean we won’t see a bounce back and indeed we should. But whether the bounce can translate into the resumption of the rally is probably not going to happen. The S&P has been stuck at resistance at 2100 for 9 trading days. That may mean the market will pullback before trying again. We will know more on Thursday.
For now, Thursday’s outlook looks like a bounce could occur but then weakness will return. In fact, we could get a bounce in the morning and then more selling later in the afternoon.
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