The huge plunge today came on the back of oil collapsing below $27. Into the lunch hour stocks reached their lowest levels with the S&P breaking 1820 to reach an intraday low of 1812.29 and the Dow falling 550 points to 15,450.56. Stocks began a climb into the later afternoon with the NASDAQ which had been down to 4313.39 into the lunch hour actually turning positive briefly by 3:30. All the indexes closed well off their lows.
The continuing plunge in oil mixed with continuing currency concerns particularly with regards to China has continued to pound markets around the world. Today’s huge plunge did not set a record however and since August of 2015, the market has seen a number of such volatile days. The recovery rally which cut the losses dramatically was seen by many analysts as a capitulation type event. I am not so sure that is the case. We will know shortly whether today was in fact a capitulation event.
Index Closing Prices
All the indexes closed well off their lows. The S&P closed at 1,859.33 down 22. The Dow Jones closed at 15,788.74 down 249.28. The NASDAQ closed at 4471.69 down just 5.26.
Advance Decline Numbers
Volume came in at 6.42 Billion. The afternoon rally helped changed the volume trends somewhat from the morning with 73% of all trades to the downside. 71% of all stocks were moving lower. The market had one of the worst days in years for new lows, setting a record that has only beat in the collapse of stocks in fall 2008. 1395 stocks hits new lows and only 3 made new highs. That is a full 43% of all stocks on New York making new 52 week lows today.
Market Direction Technical Indicators At The Close
SPX Market Direction Technical Analysis for Wednesday Jan 20 2016
Stock Chart Comments:
The S&P recovery intraday was dramatic and on strong volume. The candlestick at the close is bullish for another rally attempt on Thursday. The 50 day moving average is still falling below the 200 day moving average and is now preparing to fall below the 100 day moving average as well. This will be another sell signal. The index though did manage to close back inside the Lower Bollinger Band which is a good sign for a possible rebound rally.
The Upper Bollinger Band is still flattening out but no longer turning down. It is too early to decide whether this signals change in the trend.
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 was light support and is also resistance. 1900 is more symbolic than anything else.
1870 and 1840 are now resistance levels. 1870 was my original goal for the January correction back in December. With the market now down to 1820 there is no much support left before the market reaches 1775 or 1750.
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 on Wednesday was strongly negative but it is not falling further but instead giving signals that it may trend sideways for now.
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. The sell signal while strong on Wednesday is not showing that strength to the downside is building. If anything, it would appear to be flat with a slight bias to try to recover to the upside.
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 but was trying to rise by the end of the day.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is negative and extremely oversold with a signal of negative 8.94 which is commonly followed by a 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 weak buy signal at the close today.
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 issued a stronger buy signal than the Fast Stochastic indicator.
Market Direction Outlook for Jan 21 2016
With the market extremely oversold a bounce could happen at any time. However the indications do not support the notion that stocks somehow bottomed today and any rally back will have longer legs than just a couple of days. At this point oil is continuing to lead the market and if oil breaks below $25 and shows no signs of bottoming, the market will move lower even if it is deeply oversold.
For Thursday I am expecting the market to try to rally again but technicals are not leading the market but instead are following the movements of oil. Oil will still be the main focus of investors even if a rally ensues on Thursday. Staying cautious and taking on only small positions in large cap stocks as well as holding some short instruments for protection against a further slide is still my strategy at the present time. At this time I do not believe any rally can “stick” but instead it will assist the oversold condition but could end quickly and with more movement to the downside.
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