A double whammy of disappointing earnings from Exxon Mobil and a drop below $30.00 in the price of oil intraday, plunged stocks today. While the market struggled all day and at one point the S&P fell to 1897.29, some investors were bottom fishing and the S&P managed to close just off the lows at 1,903.03. It wasn’t pretty with the Dow down over 300 points for some of the day but investors in general continue to hold out hope the rally can be recovered. The big rally from Friday is pretty well lost though and unless oil can regain it composure, stocks look destined to retest the lows of January 20.
Even stocks like high flyer Facebook which earlier in the day was roaring higher to $117.59, changed course and dropped to $113 mid-afternoon before closing at $114.61. Another stock Alphabet, raced to $810.35 and then fell to close almost at the low of $780.91 for a gain cut to just 1.32% despite terrific earnings the day before. Almost the entire board was red except for a small handful of stocks with utility stocks staying in the green.
Index Closing Prices
All the indexes closed near their lows for the day. The S&P closed at 1,903.03 down 36.35. The Dow Jones closed at 16,153.54 down 295.64. The NASDAQ closed at 4,516.95 down 103.42.
Advance Decline Numbers
Volume on Tuesday was average at 4.47 billion shares traded. Of the traded volume 89% was to the downside, among one of the worst downside volumes again this year.
New lows jumped to 125, back above that magically 100 number which usually signals further downside to come. New high hung in at 69 down from yesterday’s 86.
The number highs and new lows are definitely pointing to oil as the main culprit behind the market’s volatility and whipsaws. The bearish sentiment can’t be broken unless oil can stabilize and gain ground and hold to higher prices. Even prices at $35 that are stable will assist the market. At present that is just not happening so stocks continue to stay volatile.
Market Direction Technical Indicators At The Close
Stock Chart Comments:
Stocks closed near the lows for the day back below both the important 1st goal of 1920 and below the 20 day simple moving average (SMA). Worse, the 50 day is just below the 100 day moving average issuing a strong sell signal on the markets.
A Bollinger Bands Squeeze is now underway and it appears it may pressure stocks lower rather than higher.
The closing candlestick is unfortunately not bullish and although often it is followed by a sideways day with a chance at a positive close.
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 was light support and is back as resistance. 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 looked like the market wanted to push to 1980 before any serious selling would occur. Tonight at the close that changed and momentum is pointing 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 buy signal on Jan 28. The buy signal is poor at the close 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 positive but falling away from being overbought.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is negative and falling. The reading at the close was negative 6.89 which is still oversold and is supportive of a bounce higher but after two days of selling, the reading probably has to fall baCk to near negative 8 before we can count on the market bouncing much 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 but took a turn down at the close. Any further selling and it will issue a sell signal.
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 but could turn to a down signal with any amount of selling.
Market Direction Outlook for Feb 3 2016
Technically the S&P actually has only one negative indicator, the Rate Of Change. All the other indicators are positive. Unfortunately though today’s action left them all weak and moving lower quickly. The two stochastic indicators are on the verge of sell signals.
The problem remains oil and continuing weak earnings. On average earnings are lower to the point where stocks could probably trade more comfortably in the 1800 to 1880 range. Investors have to see an improvement in earnings to keep stocks at their present levels.
There is though still hope but it all hinges on oil prices and “talking up” the market by Fed officials. It will be hard or impossible for the Federal Reserve to try to “normalize” rates in the present economic environment.
With 1920 lost and 1900 tested on Tuesday, it will be easy for sellers to push the market to 1880 and then 1870. If oil cannot rise, that’s where the market will head on Wednesday. Whereas technically the market is not in a bear market, the days of swings and high volatility are indicative of bear markets and not bull markets. Wednesday looks like weakness is upon stocks and another down day is ahead unless oil can rally. At this point though even a rally to $33 could move the market sideways but for the market to recover the lost rally, oil must prove it can become more stable and move higher. Right now, that looks improbable. Wednesday should end lower.
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