Investors were still trying to digest the Fed interest rate increase and in particular the wording of the Fed comments which seemed somewhat at odds with Fed comments back in November which seemed to point to a dovish stance on further increases. The quarter point increase in the Fed rate on Wednesday was not as big a concern as was the way in which the Fed presented their “arguments” for more rate increases in 2019. Whereas in November’s “back peddling” speech, Fed Chair Powell indicated a much more dovish, data driven escalation of interest rates. But the conference on Wednesday painted a much different picture with words like “automated” to describe further interest rate increases and little mention of “data-drive”. The Fed’s return to a more hawkish stance may have a lot to do with analysis done in November when many stated that the fed had blinked following an almost constant barrage of complaints about the pace of interest rate increases. Perhaps the Fed decided they didn’t like the “commentary” and “second-guessing”. Whatever the case, the Fed appears intent on continuing the course despite little data supporting the notion of inflation rising and the economy overheating. If anything there are growing signs that the rate increases are slowing the economy and could push it into a recession as early as 2019.
Thursday also saw fighting over the “border wall” being tied to a government funding shut-down. This worried some investors, but overall the concern remains with the Fed who has wiped out billions in valuations since the start of October when a more hawkish stance was handed down to investors.
Thursday saw new lows in the ongoing correction and at one point the Dow was down over 700 points. It has been the worst week since 2009 for equities and the downturn is not over.
Stock Market Outlook Chart Comments At The Close on Thu Dec 20 2018
The S&P chart remains bearish with 5 sell signals. As well the 100 day is now down to the 200 day. It will fall below the 200 day probably on Friday, marking another very strong down signal for the S&P.
All three major indexes are now extremely oversold so a bounce back could happen at any time. It won’t end the sell-off but it could slow the descent.
The closing candlestick on Thursday was bearish.
The Bollinger Bands continue to fall, pointing to more downside ahead for the S&P.
Stock Market Outlook review of Thu Dec 20 2018
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is negative and falling. It is deeply oversold as you can see in the chart.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Mon Dec 10 2018. That down signal was very strong on Thursday.
- 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 moving lower and into oversold readings.
- 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 is very oversold and is now flashing a down to neutral signal.
- 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 and very oversold.
- 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 oversold.
- 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 Resistance Levels To Be Aware Of:
2900 was support – this will be strong resistance
2860 was support – this will be resistance
2830 was light support and will be light resistance
2800 is strong resistance
2795 is light resistance
2745 to 2750 is light resistance
2725 is light resistance
2700 is resistance
2675 is light resistance
2650 is light resistance
2620 is light resistance
2600 is strong resistance.
There is good support at the 2550 level from where the market bounced back from the recent correction low on Feb 9. Despite closing below it, the 2550 level still has support for the market if it can be recovered quickly.
The S&P has light support at 2480. It also has light support at 2450 and good support at 2425. Below that there is some support at 2400, 2380, 2350.
2300 has the most support at present but would represent a full correction of 641 points as a drop to this level would be 21% and just 5% away from a bear market signal ending the bull market from 2009.
Stock Market Outlook for Tomorrow – Fri Dec 21 2018
There are no positive signals from the technical indicators for Friday except the many oversold signals which often are followed by a bounce.
There is a slim chance for a bounce attempt Friday which will fail, but it could set the market up for another bounce attempt early next week, perhaps as early as Monday.
The S&P looks set to fall below 2400 into next week unless a catalyst to the upside can be found.
Friday will end lower, but watch for bounces to unload some trades and setup others.
The so-called Santa Claus rally looks like it will not come this year but sometimes markets can surprise. The drop again on Thursday does not bode well for a Santa Claus rally between Christmas and New year’s.
Stock Market Outlook Archives
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