Market Direction Outlook For Feb 12 2016 – Oversold Bounce But Still Lower

With oil falling to a fresh new 12 year low today, there were no comments from Federal Reserve Chair Janet Yellen that investors could look to for support. Gold rallied hard today dragging along gold producers. Another large energy producer, Cenovus (CVE) slashed its dividend 69 percent and announced layoffs and reduced spending for the year. The Weekly Initial Unemployment Insurance Claims continued to point to job growth but was ignored by investors as the Dow plunged over 400 points late in the day.

A rally ensued in the last hour of trading and the loss was cut almost in half by the close but the market was ugly again on Thursday.

Index Closing Prices

The indexes closed well off their lows. The S&P closed at 1,829.08 down 22.78.  The Dow Jones closed at  15,660.18 down 254.56. The NASDAQ closed at 4,266.84 down 16.76.

Advance Decline Numbers

Volume on Thursday rose by a billion shares to 5.51 billion marking the heaviest day of trading this week. By the close, 80% of all volume was moving to the downside and 19% was rising. 80% of all stocks on New York were falling. New lows rose to 709 were 37 down from 47 on Wednesday.

Market Direction Technical Indicators At The Close

Market Direction Technical Analysis for Feb 11 2016

Market Direction Technical Analysis for Feb 11 2016

Stock Chart Comments:

The S&P set a new 52 week low today falling to 1810.10. All the major moving averages are still falling and the 50 day is falling quickly away from the 100 day signaling lower prices are still ahead. The Bollinger Bands Squeeze is beginning to end and the S&P broke through the Lower Bollinger Band today before closing above it, a signal of weakness.

Thursday saw another day with the S&P closing below the 20 day moving average on large volume.

The closing candlestick is more bullish than bearish for stocks and often marks a reversal the following day. This builds on yesterday’s closing candlestick which was bullish for a reversal day within a day or two.

The close of the S&P was above the 1820 light support level but below the 1840 level which again is a sign of weakness.

Support and Resistance Levels:

These are the present support and resistance levels. These levels have not changed since January 2015. 2100 is resistance.

2075 was light support and is also resistance. Below that is 2050 which is also resistance.

Stronger support was at 2000 which is now resistance.

Weak resistance is at 1970 while stronger resistance is at 1956 and technically it is more important than 1970 for the market. 1940 is light resistance as is 1920. 1900 is more symbolic than anything else.

1870 is resistance. 1840 continues to be support but may shortly become resistance. The 1820 level is light support but again held up well today. It cannot hold the market up much longer though.

1775 and 1750 are both 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 all-time high of 2134.72.  This would be the biggest correction since the plunge in 2011 of 271 points for a 20% pullback. A pullback to 1750 from the all-time high would be a drop of 384 points for a decline of 18%. A pull-back of that size would definitely stun investors and bring to question whether the bull market which started in 2009 is finished. From 1750 it is an easy slide to 1600 which was near the market top in 2007.

Momentum: For momentum I use a 10 period when studying market direction. Momentum is negative and 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 Feb 10. The sell signal was confirmed 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 moving sideways despite the big drop today.

Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is negative and moving lower. The reading at the close was negative 5.65 which is not notable for a possible bounce back.

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 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 down for stocks and it too is oversold.

Market Direction Outlook for Feb 12 2016

All the technical indicators remained negative and MACD confirmed a sell signal on the market.

Despite the rally back in the last hour market breadth is still extremely bearish although today’s new lows did not see a new higher number of 52 week lows. In fact it was almost slight more than half as many new lows as the January 20 dip.

As well the closing candlesticks for both today and yesterday are supportive of a bounce back day and the two stochastic indicators are oversold but not deeply. The sideways pattern today of the Ultimate Oscillator is indicative of  market that wants to bounce.

Friday is the last day of the week and few traders will want to hold positions over the weekend. As well, Monday is a holiday so next week is shortened.

The outlook remains negative for Friday but stocks could finally rally a bit but still close poorly on the day.  Watch for a possible sell-off to start the day and then a bounce back in the early morning and then more selling into the lunch hour. From there I am expecting stocks to move lower and close down into the close.


 

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