Stock Market Outlook for August 1 2016 – Weakness

The outlook for the past couple of days has been for weakness and for the market to move lower. A test of 2160 continues to show up in the technical outlook. Yet stocks are hanging tough and every dip is still being bought.

This is bullish for stocks as Monday starts one of the poorer months for equities – August.

S&P Index Close

The S&P index on Friday fell to 2163.49 near the open, but that was the extent of the drop. The market by the noon hour was up at 2177 and by the close it was at 2173.60 for a slight gain of 3.54 points.

Dow Jones Index Close

The Dow closed down again with amodest loss of 24.11 points. This places it at 18,432.24 by the close.

NASDAQ Index Close

The NASDAQ dip in the morning but the dip was quickly bought. By the noon hour the NASDAQ was above 5175 before pulling back and close at 5162.13 up 7.15 on the day.

Stock Market Outlook – Technical Indicators At The Close

Stock Market Outlook -July 29 2016

Stock Market Outlook -July 29 2016

Stock Market Outlook: Chart Comments:

The S&P has been moving sideways for 11 trading days. The day ended with another bearish candlestick on Friday.

All the major moving averages are moving higher but you can see that a possible Bollinger Bands Squeeze is starting to form. This will either send the index higher or lower.

Stock Market Outlook: Support and Resistance Levels:

These are the present support and resistance levels.

2160 is very light support.

2100 is light support.

2090 is very light support.

2075 is also light support

Below that is 2050 which is light support.

2025 is better support than 2050 through to 2090.

2000 is primary support.

Weak support is at 1970 while stronger support is at 1956 and technically it is more important than 1970 for the market. 1940 is light support as is 1920. 1900 is more symbolic than anything else.

1870 is support. 1840 continues to be support. The 1820 level is light support. The strongest support level is at 1800.

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 the plunge in 2011 of 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 which started in 2009 is finished. From 1750 it is an easy slide to 1600 which was near the market top in 2007.

Stock Market Outlook Technical Signals

Momentum: For momentum I use a 10 period when studying market direction. Momentum is positive and moving sideways. It is close to turning negative but has not done so for three days.

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 buy signal on July 1. The buy signal is so weak now that any downside action on Monday will see MACD issue a sell signal.

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 moving sideways.

Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is positive and falling back.

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 extremely overbought and has a down signal in place.

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 I have it set for daily views. The Fast Stochasticis is also overbought but has an up signal in place.

Stock Market Outlook for Tomorrow – August 1 2016

The technical indicators are hardly changing except MACD which is on the verge of a sell signal. This is a time to be a bit cautious here. I would not be selling naked or covered calls unless an investor wanted to either be assigned shares or lose shares. The market is entering a Bollinger Bands Squeeze which could easily surprise to the upside. Often we have seen these sideways moves last for a couple of weeks and then stocks shot higher.

On the other side of the picture is the fact that most Bollinger Bands Squeezes that occur at the top of a rally, end with stocks falling. Right now all the dips are being bought by investors and traders. Every small dip has seen a spike in volume as investors jump in and try to squeeze out a profit. This is keeping the market above 2160 which is the level investors are using to jump into stocks. At 2170 and higher they are selling out of these short-term positions. This has been the major “game” for the past two weeks for traders. That cannot last and I expect a break up or down this week to end this sideways movement.

The outlook for Monday is once again weakness but to a larger degree almost neutral, with the Fast Stochastic still showing up for stocks for Monday while the Slow Stochastic points down and both are very overbought.

This is providing us with a weak market which I think won’t last much longer. Stock could break either way this week and could start as early as Monday to show us which way stocks are going to turn.


 

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