The rally on Friday was stronger than I had expected. The rally in the price of oil caught investors enthusiasm and stocks moves higher quickly. Many stocks jumped over 2.5% and some moved above 3% for the day.
Index Closing Prices
All the indexes closed at their highs. The S&P closed at 1,906.90. The Dow Jones closed at 16,093.51 up 210.83. The NASDAQ closed at 4,591.18 up 119.12.
Advance Decline Numbers
Volume came in at 4.91 billion shares, slightly down from Thursday. 83% of trades were moving higher. There were just 27 new lows which was a huge change from Wednesday’s 1395 new lows. There were 13 new highs. With new lows well below 100 and indeed well below 50 the market should be able to push higher.
Market Direction Technical Indicators At The Close
SPX Market Direction Technical Analysis for Jan 22 2016
Stock Chart Comments:
The S&P rally Friday was strong not just in the volume but in the rapid decline of new lows. The 50 day simple moving average (SMA) has now falling well below the 200 day moving average. The 200 day moving average is now leading the market once again which is a bearish signal. The 50 day though has not fallen below the 100 day moving average so there is still hope that another sell signal will not be generated.
The first goal of the market is 1920 and on Friday it closed within 14 points of the first goal.
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 still trying to support the markets but are support at present.
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 Thursday was negative but rapidly 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. The sell signal pulled back strongly on Friday.
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 working its way higher.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is negative and is no longer extremely oversold. With a negative reading of 5.65 it is still quite oversold so there could still be more room or the upside for stocks.
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 confirmed the recent buy signal and is pointing higher 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 issued a strong buy signal mid-week which was also confirmed. It is pointing up for stocks for Monday.
Market Direction Outlook for Jan 25 2016
The market is still somewhat oversold but the extreme oversold condition is gone. That could slow the advance. As well the price of oil must continue to climb, otherwise the market is in jeopardy of closing back below 1880.
No matter what is being said or read into the recent correction and the present rebound, this has been driven in large part by the decline in oil prices and for the moment, that is not going to change. This means while the rally looks bullish its rally depends on oil. The closing candlestick on Friday was strong and bullish, but it also is often followed by a weak opening for the following day, which I am expecting for Monday morning.
I am still expecting a rise during the day and a positive close but if oil tumbles, the market will pullback. The outlook then is one of staying cautious as oil continues to sort “itself” out.
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