Thursday started off as a bad day with futures pointing to a large down move at the open. A late morning rally seemed to offer hope that the day might not end too poorly but more comments on the coronavirus and questions about the handling of returned citizens sparked another round of selling. The selling worsened as the afternoon progressed and the close was particularly nasty. The 3000 support level was broken by the S&P which ended the day down 4.4% at 2978.76. Friday we should see an attempt to try to retake 3000 but the outlook is poor for any kind of a bounce.
Since setting a new high on Wed Feb 19, the S&P has now lost 415 points for a loss of 12.2% from the all-time high. Selling since Monday has been strong and near panic levels. The sell-off on Thursday reached washout levels but with fear of a potential pandemic front and center for most investors, the chance of a recovery even from such oversold readings is slim to none.
Stock Market Outlook Chart Comments At The Close on Thu Feb 27 2020
The SPX chart is bearish following six straight days of selling. The 21 day moving average is ready to fall below the 50 day which will be a major sell signal. The 50 day moving average is already turning down. The 100 day is no longer climbing.
The index broke through 3100 before markets even opened and started the day below the 200 day moving average and failed to even come close to recovering it.
The next level of support is at 2960, just 19 points below Thursday’s close.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling for a eight day and is at very 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 again on Thursday and very oversold. The down signal is at readings normally seen in bear market panics.
- 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 still falling and very 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 an extreme down signal in place for Friday and is very oversold. The signal here is at levels seen usually in bear market panics.
- 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 still falling and now into deeper oversold readings that are rare not to see 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 falling and very oversold. It however shows no signals that the index may try to 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 resistance
3075 is light resistance
3000 was good support and may be revisited next week
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 – Fri Feb 28 2020
Extreme readings of a very oversold but panicked market are seen in all the technical indicators.
There are though no signs of an imminent bounce. Fear of a pandemic is holding investors almost captive and they want out of positions.
The futures early evening are flat to negative for Friday’s open but that can change in a split second.
With fear dominating, investors must calm down and pullback on selling before the market can stage any kind of meaningful attempt to stabilize. Until then, caution and protection are warranted. A deeply oversold market can jump at any time but a catalysts still appears unlikely to end the month of February. This sell-off will be one for the history books when it ends. The break on Thursday of the 3100 level marks a full bull market correction. Another 8% drop will signal a potential bear market. On bounces on Friday I will once again be buying SPY Put options for protection and profits.