Investors took heart from a rise in oil which many analysts felt is showing signs that traders are tired of the volatility and are looking for oil to stabilize. The action with oil prices made for an interesting day. Many analysts called today a signal back to the upside for oil and advised that investors should consider that oil could by the end of the year be back at $45 to $55 a barrel. I’m not buying their reasons just yet.
The day started with a weak open and by 10:00 AM the market was down at 1878. For a lot of investors that seemed to be their cue and they jumped in and pushed stocks higher for a gain of 31.56 points closing the index back at 1921.84. It was exciting to watch the market mood change as the day progressed. Many analysts on CNBC were calling this the bottom today at 1878 and I must admit I have looked for a retest of the August lows in January. So was that it? Is that the end of the decline? Personally I don’t think so.
The correction I was looking for in January was for around 10% which we did reach but overall I didn’t see anything technical that told me that today’s rally was much more than a deeply oversold bounce. Indeed while volume to the upside was 3.9 billion versus 1.2 billion to the downside, 690 stocks set new lows with 6 new highs. These are very bearish numbers and looking at the stocks that did have a good day, most were blue chip dividend paying stocks.
Advance Decline Numbers
Those are covered above but suffice to say, the market breadth was poor and definitely looked like a typical bear market rally, with lack of participation by the broader market. Bear market rallies can be amazing to behold both in their fury and in their inability to carry the broader market higher. That in basic terms, is what I saw in today’s rally.
Market Direction Technical Indicators At The Close
SPX Market Direction Technical Analysis for Jan 14 2016
Stock Chart Comments:
The S&P is back inside the Lower Bollinger Band again today although the closing candlestick is not very bullish tonight. The market today still made a new low and the high today and the close was still below yesterday’s intraday high which was 1950. The close though was above the 1920 level but overall the chart looks poor. The 50 day is ready to fall being the 100 and 200 day moving averages/ The 100 day moving average is below the 200 and still dropping.
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 is now resistance. 1920 is light support but has been doing not too bad a job of holding the market together..I don’t know if that can last much longer. 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 2015. 1870 was my original goal for the January correction back in December. I am no longer sure the market can hold 1870.
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 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 on Thursday is negative but 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 Jan 4. That sell signal weakened slightly 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 oversold and rising.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is negative and turning up slightly but normally it will have a much more bearish number for the start of a sustained rally.
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 issued a buy signal today and is deeply 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 has issued two buy signals this week from a deeply oversold reading.
Market Direction Outlook for Jan 15 2016
The market looks like it is still trying to build a base, but I am beginning to wonder if too many investors are anticipating a strong rebound from the 1870 level which is perhaps one reason the market rallied hard today. Technically the indicators are still poor and bearishness abounds. The two stochastic indicators have turned out buy signals but these type of momentum signals are often skewed by big up and down days so I am not sure how reliable at present the stochastic buy signals are. MACD is still quite bearish as is momentum.
Overall there is always the chance the rally can last more than a day. It was after all the best rally since December 4. My own opinion after looking at the charts and the market breadth is that we will see a move higher perhaps to start the day but then more selling will emerge. I think Friday could disappoint the bulls, especially if not many investors are willing to hold positions over the weekend.
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