Stock Market Outlook for Aug 7 2020 -Overbought, Dips Likely But Higher Close

Thursday saw another record high for the NASDAQ and the first close above 11,000. The NASDAQ is now up 23.8% for the year!

The S&P closed higher for a fourth straight day, ending the day at 3349.16. The S&P is now down just 1.3% from its all-time high.

Stock Market Outlook Chart Comments At The Close on Thu Aug 6 2020 

The Bollinger Bands Squeeze continues to come unraveled as the Lower Bollinger Band falls and the Upper Bollinger Band rises.

The closing candlestick on Thursday was bullish for Friday.

There are now 6 up signals and one down signal when the Lower Bollinger Band moving above the 100 day moving average back on July 27.

The 21 and 50 day moving averages are climbing still further, which is readily seen in the chart. The 100 day is also climbing further above the 200 day.

The index is back to the standard form of the 21, 50, 100 and 200 day format which is typical of a bull market.

Stock Market Outlook review of Thu Aug 6 2020

Stock Market Outlook: Technical Indicators Review:

Momentum: Momentum is rising.

• Settings: For momentum I use a 10 period when studying market direction.

MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued an up signal on Monday Aug 3. On Thursday the signal was stronger again.

• Settings: For MACD Histogram, I am using the Fast Points set at 13, Slow Points at 26 and Smoothing at 9. 

Ultimate Oscillator: The Ultimate Oscillator is rising and is overbought.

• Settings: 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.

Slow Stochastic: The Slow Stochastic has an up signal in place and is signaling extremely overbought.

Settings: 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.

Relative Strength Index: The RSI signal is rising and signaling overbought.

• Settings: The relative strength index is set for a period of 5 which gives it 5 days of market movement to monitor.  It is often the first indicator to show an overbought or oversold signal.

Rate of Change: The rate of change signal is turning sideways indicating price changes are not expected on Friday.

• Settings: Rate Of Change is set for a 21 period. This indicator looks back 21 days and compares price action from the past to the present. With the Rate Of Change, prices are rising when signals are positive. Conversely, prices are falling when signals are negative. As an advance rises the Rate Of Change signal should also rise higher, otherwise the rally is suspect. A decline should see the Rate Of Change fall into negative signals. The more negative the signals the stronger the decline.

Support and Resistance Levels To Be Aware Of:

3300 is resistance

3275 is resistance

3200 is support

3150 is support

3050 is support

3000 is support

2975 is light support

2950 is light support

2900 is light support

2860 is light support

2840 is light support

2800 is good support

2725 is light support

2700 is light support and marked a drop of 20.4%.

2500 was good support and marked a correction of 26.3%

2191 was the market low on March 23

 Stock Market Outlook for Tomorrow – Fri Aug 7 2020 

The indicators continue to point to strength in the index.

Three of the technical indicators are continuing to signal that the market is very overbought.

Even with the non-farm payroll numbers for July, the index remains bullish. We could see a bigger dip if the unemployment number rises more than expected but investors are focused on a recovery in the economy, sooner rather than later. Bulls are still very much in charge.

For Friday investors should expect some selling pressure and dips are likely, but a higher close is still expected.

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