The outlook for May 6 was for stocks to attempt a rebound at the open, fail and fall lower. Indeed the selling intensified as the day progressed and by 2:43 stocks were trading below the 100 day moving average reaching 2067.93. This created a bounce back as the 100 day moving average is a strong technical indicator for many traders who seek rebound opportunities.
The S&P closed the day at 2080.15 well off the 2067.93 low.
Advance Decline for May 6 2015
Surprisingly volume came in the same as Tuesday at 3.8 billion shares. While the drop may have appeared severe, only 66% of volume was to the downside. This was in stark contrast to Tuesday when 78% of all stocks were moving lower. By the end of the day 52 week new lows were at 65 a slight rise from Tuesday’s 50 new lows and new highs fell back to just 23 from Tuesday’s 43.
All in all none of this points to a prolonged downturn at this point. Instead it appears more like sideways action is about to start.
Market Direction Closings For May 6 2015
The S&P closed at 2,080.15 down 9.31. The Dow closed at 17,841.98 down 86.22. The NASDAQ closed at 4919.64 down 19.68.
Market Direction Technical Indicators At The Close of May 5 2015
Let’s review the market direction technical indicators at the close of May 6 2015 on the S&P 500 and view the market direction outlook for May 7 2015.
Market Direction Technical Analysis for May 6 2015
Stock Chart Comments:
The S&P spent the entire day moving lower until the 100 day moving average was breached. That brought in buyers who pushed the market back to close well off the lows. This occurred in all 3 major indexes. The close today while still well off the lows set up a lower low for the market. This means any bounce higher on Thursday and/or Friday is suspect.
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 is negative and falling.
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 May 5. Today is was confirmed.
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 falling.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change has signaled a possible change was highly likely. Today by the close the signal was sideways for stocks rather than a lot lower.
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 sell signal today on the S&P.
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 signaling lower still for stocks but it is oversold and could bounce.
Market Direction Outlook for May 7 2015
While today’s pullback brought stocks down to the 100 day moving average and at 2:40 certainly might have appeared menacing, volume was not strong enough to the downside. Momentum too while negative was not strongly negative enough to push stocks still lower. The late day rally back left the markets weak but ready to possibly try a bounce higher on Thursday ahead of Friday’s non-farm payroll numbers.
Those numbers have been the most important signal for the market for almost two years and markets tend to trade wide swings around those numbers. I would expect more sideways than down or up on Thursday as investors prepare for the release of the non-farm payroll numbers.
Technically all 6 indicators are signaling more downside is ahead for stocks but the non-farm payroll numbers might change that although I think it is unlikely. For Thursday I am expecting a bounce attempt at the open to continue the late day rally from today. Then I am expecting more weakness and stocks to move sideways. After two days of strong selling, don’t be surprised to see the market try to move up even a slight amount on Thursday in a reaction to the selling.
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