On Tuesday we got a small bounce at the open and then a move lower. The move lower however gained momentum as the morning progressed and the SPX easily fell through 3200 on large volume. Fears of a potential global spreading of coronavirus continues to panic investors.
By the afternoon stocks were back in free-fall and came within 18 points of reaching the next support level at 3100. The close saw a very small bounce attempt but the day belonged to the bears as rising volumes pushed buyers aside at every turn.
The S&P lost 3% to end the day down 97 points at 3128.
The NASDAQ collapsed 2.7% losing 255 points to close at 8965, back below 9000.
The Dow Jones fell 879 points to end the day at 27081.
It was another brutal trading session.
Stock Market Outlook Chart Comments At The Close on Tue Feb 25 2020
The SPX chart is bearish following four straight days of selling. Tuesday saw a second washout day with a huge drop of 97 points on top of Monday’s drop of 111 points. For two days the index has now lost 209 points. The S&P is now down 7.8% from the all-time high which was just on Feb 19.
The index dropped through the 100 day on Tuesday with ease. It is rare to see this kind of collapse through strong support levels and it would be unusual for a rebound not to retake the 100 and attempt to take the 50 day moving average before continuing a move lower. The closing candlestick on Tuesday is signaling a higher potential for a bounce.
The 21 day moving average is now falling but the 50, 100 and 200 day moving averages are still climbing.
There are still three support levels in place. These are light support at 3100 and 3075 and 3000 which is major support.
Resistance to the rally is now moved to 3300. The chart is very bearish but also signaling a bounce could happen at any time.
Stock Market Outlook review of Tue Feb 25 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling for a sixth day and is at oversold levels.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Friday Feb 21. The down signal was extremely strong today and the readings are oversold.
- 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 signal is falling and oversold.
- 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 a down signal in place for Wednesday and is reaching oversold.
- 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 falling rapidly and now into deeper oversold readings that usually are followed by a bounce.
- 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 also falling and it too is into deeper oversold readings that normally are followed by a bounce.
- 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:
3400 is resistance
3300 is resistance
3200 is light resistance
3100 is light support
3075 is light support
3030 is very light support
3000 is good support and if the S&P fell this low it would mark a normal correction in a bull market
2960 is light support
2900 is light support
2860 is light support
2840 is good support
2800 is strong support
Stock Market Outlook for Tomorrow – Wed Feb 26 2020
By the close of trading on Tuesday the index is extremely oversold. The technical readings, as you can see are pointing to the potential for a bounce. However fear of the coronavirus continues to hold the attention of investors which could mean any bounce may be small or short-lived as we saw on Tuesday or may not occur at all.
Rarely will a collapse occur without bounces off moving averages and/or support levels but with concerns continuing over the potential spread of the coronavirus and what it could mean economically at present the market is close to a free-fall. A drop of 7.8% is not unusual in a bull market and with stocks up huge in 2019, many stocks were overvalued heading into 2020. That made the drop in many high-flyers easier to occur. That said, some stocks are moving into valuations that make more sense but if the fear of a recession as a fallout from the coronavirus, grows, then any bounce may not last and the index could slip to the 3000 level.
For Wednesday the signals are for a bounce. It now just depends on whether investors are willing to join into any bounce. At present any bounce still looks fleeting and shallow. Any positive news on the coronavirus spread will help markets recover quickly, however Tuesday evening, the news continues to paint a worsening outlook for containing the spread of the virus and that could mean a small bounce only on Wednesday before more selling.
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