Thursday was an important day for equities. The S&P and NASDAQ lost ground on large volume of trades and the Dow Jones advanced to a new all-time high. Equities today dispelled a myth that analysts have been telling investors regarding new capital flowing into stocks from the hammered bond market. Instead today proved that investors in equities are simply selling sectors they believe will not do well under the new President and buying those sectors that they think will do well. This means there is no “new” money flowing into equities but instead it is the same “old” money that is being “recycled”.
This makes the rally very suspect and not supportable unless there is a change. Only a broad advance can keep a rally higher. Eventually a narrow rally that does not involve the majority of stocks, will fall and often it will fall hard. Caution is definitely advised for the present time, until we either see more stocks start to rise or the market fall back to levels that have more appropriate price to earnings ratios, which would mean the S&P back below 2100.
SPX History For Dec 1
Historically the S&P has been down 6 of the last 9 years on December 1. The NASDAQ on the other hand has been up 19 of the past 28 years. Overall then a down day today was not unexpected and the S&P and NASDAQ are well within reach of their all-time highs. That is not the concern at present. What is of concern is the technical aspect of the rally as you will see in the technical report for this evening.
S&P Index Close
The S&P index ended the day down 7.73 points to close below 2200 at 2191.08.
Dow Jones Index
The Dow Jones ended the day with a 68.30 advance to close at 19,191.93.
NASDAQ Index Close
The NASDAQ fell 72.57 points to once again have the worst performance of all three indexes. It fell 1.36% to close at 5,251.11.
Stock Market Outlook
Chart Comments At The Close:
Stock Market Outlook review for Dec 1 2016
The S&P ended Thursday below 2200 for the second day. The S&P slipped below 2190 for a brief period, reaching 2187.44 before moving back higher. The closing candlestick is bearish for Friday. All the major moving averages are continuing to climb. It will take at least another day of selling before the 20 day will start to turn lower. The Upper Bollinger Band which was moving quickly ahead of the rally is turning sideways which is indicating a top to the present rally may be in place. The Lower Bollinger Band is rising toward the 200 day which if it crosses the 200 day is another bearish signal for stocks.
Stock Market Outlook: Technical Indicators
Stock Market Outlook technical review for Dec 1 2016
Momentum: For momentum I use a 10 period when studying market direction. Momentum continues to fall and is nearing a neutral reading. On Thursday it closed at 100.66. Another day of selling will send this indicator negative.
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 Nov 9. The buy signal is quickly weakening as you can see in the chart and in particular in the MACD histogram, found below the signal lines.
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 use for the 1 to 3 month S&P 500 chart when I have it set for daily views. The Fast Stochastic is still signaling down and shows the market as extremely overbought.OS now negative and continuing to fall indicating there is more downside ahead.
Stock Market Outlook – Technical Review For Dec 1 2016
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 falling lower and negative..
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is positive and is continuing to rise. This indicator looks back 21 days and compares price action from the past to the present. As such it still indicates higher prices are ahead however remember that it is comparing present prices with 21 days ago.
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 a down signal in place and shows the market as overbought. Since this looks out more than a day, it is predicting that the index will be lower in the next few days.
Stock Market Outlook for Tomorrow – Dec 2 2016
The jobs numbers Friday morning will have an impact on the stock market outlook. However it may not be as big an impact as the technical indicators may have. Presently they are showing that weakness is overtaking the rally and despite the Dow Jones making a new highs today, weakness is spreading among stocks and the technical indicators are showing us this.
Therefore on Friday stocks might rally following the jobs numbers, but the outlook is still lower which may mean a rally off the jobs report for November and then a pullback into the close or for Monday.
Stay cautious until there are clearer signs whether the rally intends to move down to 2180 or back up to above 2205.
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