My outlook for stocks on Thursday and Friday last week seemed to get it backwards. Thursday I was looking for stocks to bounce back and instead stocks sold lower and on Friday I was anticipating stocks would move lower but instead they rallied. While never easy to predict, in general the move higher on Friday in stocks has poor technical indicators. Let’s look at Friday’s action and see what might happen to start the first week of May.
Advance Decline for May 1 2015
On Wednesday volume was 4 billion shares and on Thursday it rose to 4.47 billion. But on Friday it dropped a billion shares to 3.4 billion. 70% of the volume traded was to the upside on Friday but despite this, the number of new lows fell only slightly to 41 and new highs moved up by just 8 to 47. Once again on Friday, volume and breadth were poor.
Market Direction Closings For May 1 2015
The S&P closed at 2,108.29 up 22.78. The Dow closed at 18,024.06 up 183.54. The NASDAQ closed at 5005.39 up 63.97.
Market Direction Technical Indicators At The Close of May 1 2015
Let’s review the market direction technical indicators at the close of May 1 2015 on the S&P 500 and view the market direction outlook for May 4 2015.
Market Direction Technical Analysis for May 1 2015
Stock Chart Comments:
The S&P recovered on Friday pushed back above 2100 to close at 2108.29. This places the S&P back above both the 50 day and the 20 day simple moving averages (SMA). It also closed on Friday above Thursday’s open. Normally this is a signal of a reversal. Both the Upper Bollinger Band and the Lower Bollinger Band are working toward a possible Bollinger Bands Squeeze. Whether the SPX will move higher out of this squeeze or lower is difficult to judge at this time.
Support and Resistance Levels:
These are the present support and resistance levels.
2100 is very light support. Stocks will have to stay above it to change it back to solid support and convince investors that the market has staying power and will push well beyond 2100. That still does not appear to be the case.
2075 is light support. Below that is 2050 which is also light support. Stronger support is at 2000 which has repeatedly held the market up throughout each pullback in January and February.
Weak support is at 1970. Stronger support is at 1956.
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.
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 most recent high. This would be the biggest correction since April 2012. A pull-back of that size would definitely stun investors and bring to question whether the bull market is finished.
Momentum: For Momentum I am using the 10 period. Momentum on Friday moved back to positive.
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 weak sell signal on April 30 but did not confirm the sell signal on May 1.
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 back positive and rising.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change is turning back up but there is no actual change. This move on Friday is placing the Rate Of Change back on a sideways trend.
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 pointing down 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 is pointing higher for stocks and issued an unconfirmed buy signal on Friday at the close.
Market Direction Outlook for May 4 2015
The technical indicators have two indicators that are negative, 3 indicators that are positive and 1 indicator that is pointing sideways. The close on Friday was above Thursday’s open which often marks a reversal. The problem is stocks were high to begin with and the pullback on Thursday while large, didn’t really change the “picture” for stocks.
For Monday the technical indicators are showing the bias is sideways but with a higher close.
My personal outlook is for stocks to pullback at the open on Monday and then try to move higher. I anticipate though stocks will be weak following the rebound rally on Friday.
I thought the rally was nice to see on Friday but volume was poor and new highs and new lows continue to point more to a sideways pattern with a slight bias lower.
Whatever happens at the open, by mid-morning we should have a better idea how the day is trending. I will post an intraday chart analysis on Monday part way into the morning.
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