The market direction outlook for Monday Jan 25 was for the market to tumble if oil pulled back. After two days of rallying, oil pulled back and closed at $30.34 on Monday following bearish comments out of Saudi Arabia. Meanwhile according to the Dallas Fed, monthly manufacturing weakened in southwestern USA in January with the index dropping to a negative 34.6. December’s monthly manufacturing index was revised lower to negative 21.6.
Tuesday the Fed starts its policy meeting and on Friday the fourth quarter GDP is announced. Stocks tried to hold their ground most of the day but remained under selling pressure until later in the afternoon when selling increased, driving the indexes lower. By the close Friday’s rally had been lost.
Index Closing Prices
All the indexes closed just off their lows. The S&P closed at 1,877.08 down 29.82 for a loss of 1.56%. The Dow Jones closed at 15,885.22 down 208.29 for a loss of 1.29%. The NASDAQ closed at 4,518.49 down 72.69 losing 1.58%.
Advance Decline Numbers
Volume came in at 4.38 billion with 88% of all volume moving to the downside by the close on Monday. New lows were 103 and new highs just 17. New lows earlier in the day were a lot lower but the afternoon selling pushed stocks lower resulting in new lows rising. Anywhere over 100 for new lows and markets will be unable to sustain any kind of rally.
Market Direction Technical Indicators At The Close
SPX Market Direction Technical Analysis for Jan 25 2016
Stock Chart Comments:
The drop in the afternoon sent the S&P back to Friday’s opening numbers of 1877.40. Today’s dramatic sell-off in the afternoon, wiped out the gains made on Friday.
The 50 day simple moving average (SMA) is nearing the 100 day as it continued to fall. A move below the 100 day moving average will provide a strong sell signal to the market. The 200 day is leading the market index lower.
The first goal of the market is 1920 and on Monday that goal was never reached as stocks came under pressure right from the opening of the day. Stocks did manage to stay above the 1870 support level but support is weak and determined selling will easily break through.
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 sellers will easily be able to overcome these technical support levels. 1820 is light support.
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 Monday was negative and turning 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 sell signal on Jan 4. The sell signal continued to weaken on Monday.
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 stuck sideways.
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 7.94 which once again is signaling the market entering oversold. The readings this negative are often followed by bounces in the index.
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 still oversold and pointing 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 took a sharp turn lower but is still holding an up signal. Any selling on Tuesday though will create a sell signal.
Market Direction Outlook for Jan 26 2016
The market pullback was almost all the result of oil falling. This week is one of the busiest earnings week for stocks. Earnings must improve and show resilience and the ability to surprise to the upside, for stocks to be able to move higher.
With so many stocks below their respective 200 day moving averages, stocks are already heading toward a bear market. The Indexes on the other hand are weak, but there are enough stocks clinging to their 100 and 50 day moving averages to keep the indexes hanging on. Overall though the general underlying tone remains bearish and new lows continue to outpace new highs as they have done all of January.
One bright spot for stocks could be a decline in the US dollar. The dollar may have peaked back in December and be ready to pullback even slightly from its highs. This will help companies with their earnings.
For Tuesday, stocks may try again for a bit of a rally, especially in the early morning, but the outlook appears dim for the bulls at this time unless oil can rally higher and stronger. Investors should prepare for the possibility of another negative close on Tuesday.
Stay FullyInformed With Email Updates
Market Direction Internal Links
Profiting From Understanding Market Direction (Articles Index)
Understanding Short-Term Signals
Market Direction Portfolio Trades (Members)
Market Direction External Links
IWM ETF Russell 2000 Fund Info
Market Direction SPY ETF 500 Fund Info