On Monday another month of weak manufacturing data coupled with a plunge in oil prices, took stocks lower at the open but shares of Facebook and Alphabet continued to rally. With rumors about a possible oil “agreement” being dashed, new rumors rose that a Fed rate hike in March was unlikely. This time though the rumor was caused by Fed Vice-Chair Stanley Fischer, who indicated that the central bank’s policy moves are not predetermined as it assesses the impact of recent market turmoil. Investors and analysts took his comments to mean that the Fed could hardly move interest rates in March, with the Bank of Japan establishing negative interest rates. That ended the decline and stocks slowly worked their way higher.
Index Closing Prices
All the indexes closed near their highs for the day. The S&P closed at 1,939.38 down just 0.86. The Dow Jones closed at 16,449.18 down just 17.12. The NASDAQ closed at 4,620.37 up 6.41.
Advance Decline Numbers
Volume on Monday dropped over a billion shares to 4.34 billion, down from 5.51 billion on Friday. New highs jumped past new lows with 86 new highs and just 36 new lows as investors bought the sell-off to pick up shares that on Friday were trading at higher prices.
Of the volume traded 44% was to the upside but the number of new highs and the rally indicates stocks have further to climb.
Market Direction Technical Indicators At The Close
SPX Market Direction Technical Analysis for Feb 1 2016
Stock Chart Comments:
Stocks closed at near their highs after recovering from a drop all the way down to 1920. The SPX closed back almost at 1940 and is set to try again on Tuesday to push beyond 1940. The first goal of the rally was to take 1920. Today the market retested 1920, held it and moved higher.
The closing candlestick is unfortunately not bullish but in my experience today’s closing candlestick is wrong about 50% of the time. The S&P closed above the 20 day moving average today.
The 50 day moving average is continuing to fall below the 100 day and the Bollinger Bands Squeeze is continuing to form. There is a fair amount of pessimism still with 56% of surveyed analysts and investors bearish and only 26% bullish. The recovery rally today despite the plunge in oil prices is a good event for the market at this point in time.
Support and Resistance Levels:
These are the present support and resistance levels. These levels have not changed since January 2015. 2100 was light support. Stocks have been unable to stay above this level. It remains resistance.
2075 was light support and is also resistance. Below that is 2050 which was also light support and now 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 was light support and was retaken on Friday and reached again today. 1920 is light support again after being retested today. 1900 is more symbolic than anything else.
1870 and 1840 have continued to support the market and the 1820 level is light support but again held up well in the sell-off of the last two weeks.
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 2011 plunge 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 is finished.
Momentum: For momentum I use a 10 period when studying market direction. Momentum had a bigger move today than it did on Friday which is nice to see. The strength higher on a sell-off such as we saw in the morning, is a good indication of a possible move to 1980 shortly.
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 Jan 28. The buy signal strengthened further 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 positive and rising into overbought.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is negative and rising. The reading at the close was negative 6.01 which is still oversold and is supportive of a bounce higher.
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 up for 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 has an up signal in place for Tuesday but it is not as strong an up reading as it was for Monday’s open.
Market Direction Outlook for Feb 2 2016
Technically the S&P still has only 1 negative indicator. All the remaining indicators are positive and flashing buy signals or up signals. Many of the buy signals have strengthened following today’s big recovery from the early morning sell-off.
The market closed again above the 20 day simple moving average (SMA) which is excellent for the rally. The biggest technical event today was the recovery from the early morning sell-off and the number of new highs now above 80 and new lows dropping quickly.
These are more signs that the bias remains to the upside for Tuesday than to the downside. Therefore any weakness is an opportunity to put in place more trades in my opinion, as the market continues to show signs and signals that it wants to move higher.
It was nice to see the market recover even with oil plunging today. That in itself is a bullish sign. With the first goal at 1920 retested and held today, the market now needs to recover the 1980 level. I am expecting further upside on Tuesday.
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