The jump in stocks on Friday was a bit overdone. Today we saw stocks consolidate gains and many investors were busy taking profits. One sector that was hit a bit harder than the others was health care. Bristol-Myers Squibb Stock plunged on Friday amid reports of a failed trial in Opdivo which many analysts believed would significantly boost earnings at Bristol-Myers Squibb Stock. Today further downgrades sent Bristol-Myers Squibb Stock lower taking down many other health care stocks in sympathy.
Meanwhile oil jumped 2 percent on rumors of yet another attempt by OPEC to reduce production to force prices higher. Despite repeated failures by OPEC to basically “do anything” about oil prices, investors still boosted oil futures.
Another issue that is starting to arise and which gave investors pause, were quarterly earnings results which are still pouring in. The S&P is set to report on average a sixth straight quarterly drop in earnings. Investors are questioning just how high they can push stocks in light of declining earnings. All of this weighed on investors today and stocks moved sideways and closed slightly lower on Monday.
S&P Index Close
The S&P index fell 1.98 points to close at 2180.89.
Dow Jones Index Close
The Dow closed down 14.24 points to 18,529.29.
NASDAQ Index Close
The NASDAQ fell slightly by 7.98 points to close at 5,213.14.
Stock Market Outlook – Technical Indicators At The Close
Stock Market Outlook – August 8 2016
Stock Market Outlook: Chart Comments:
The market took a breather on Monday with stocks trading sideways and holding slight losses. The close though, left a bearish candlestick for Tuesday’s market. The S&P is still trading above the Middle Bollinger Band and trying to push above the Upper Bollinger Band. While Friday’s move higher was strong, it looks to have been too large a one day move and stocks appear set to move sideways to consolidate the move up on Friday.
The Bollinger Bands Squeeze is still underway but the Upper Bollinger Band does not show signs of stocks breaking to the upside. This is a concern.
All the major moving averages are rising.
Stock Market Outlook: Support and Resistance Levels:
These are the present support and resistance levels.
2160 is very light support.
2150 is 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 on Monday continued to rise but only slightly.
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 August 1. That sell signal weakened further 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, rising and overbought.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is positive and falling which indicates no change is expected to the upside.
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 has an up signal in place for Tuesday.
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 has an up signal in place for Tuesday and is very overbought. It also shows that a sell signal could be generated if stocks pullback again on Tuesday.
Stock Market Outlook for Tomorrow – August 9 2016
Technically the indicators are still positive aside from MACD. All the indicators continue to point to stocks moving higher. However the closing candlestick and the Bollinger Bands Squeeze are not as bullish and they point to stocks facing some stiff resistance.
Tuesday then, has a mixed picture. While overall the outlook still looks like stocks could push higher, investors should remain concerned that bearish signals remain and stocks could take a breather for yet another day on Tuesday. Right now though, any dip on Tuesday still looks like an opportunity to setup trades for when stocks push still higher. Caution though is still warranted while stocks work out Friday’s big jump.
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