Thursday was a dramatic roller coaster ride. All major indexes opened lower, tried to rally and within a few minutes began a decline.
By 11:30 the S&P was down to 2621 and looked set to break lower.
The market became calmer when word came of Raphael Bostic, Fed President, advising in a speech that interest rates were “within shouting distance of neutral”. These comments were followed up by comments from Fed President Robert Kaplan who indicated that the Fed needed to proceed with care.
Meanwhile IMF’s Managing Director Christine Lagarde also commented on how the US was not headed for a recession anytime soon and indicated she felt fears of a global slowdown were “overdone”.
Thsee comments worked to calm investors and brought the market back from the edge of what would have been a continued plunge.
By the close the NASDAQ had recovered the entire loss to turn positive and the S&P was down just 4 points. It was a remarkable rally.
Let’s review the close on Thu Dec 6 2018 and see what it can tell investors for Fri Dec 7 2018.
Stock Market Outlook Chart Comments At The Close on Thu Dec 6 2018
The S&P index closed below all the major moving averages again on Thursday. The closing candlestick however, often signals a reversal in the market movement.
There are still 4 strong selling signals in the S&P which are seen in the chart below.
The 21 day moving average is back falling and the 50 day is falling toward the 200 day moving average. If it falls below the 200 day it will be another strong sell signal for the market to contend with.
The Lower Bollinger Band is moving lower and the Upper Bollinger Band is also dipping, both of which are bearish.
Despite the recovery on Thursday afternoon, the S&P chart is still very bearish.
Stock Market Outlook review of Thu Dec 6 2018
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is positive and rising.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued an up signal on Wed Nov 28 2018. The up signal was weaker again 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 rising.
- 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 Friday.
- 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.
- 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.
- 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 good support – this will be strong resistance
2860 was good support – this will be resistance
2830 was light support and will be light resistance
2795 is light resistance
2745 to 2750 is light resistance
2725 is light resistance
2700 is support
2675 is light support
2650 is light support
2620 is light support
2600 is strong support and held the market up from the lowest pullback in the present correction
There is good support at the 2550 level from where the market bounced back from the recent correction low on Feb 9.
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 7 2018
Thursday’s dramatic reversal is reflected in some of the technical indicators tonight. Of the 6 technical indicators, 3 are positive and trying to rise and 3 are negative and falling. The index is split following Thursday’s dramatic reversal from the morning lows.
For Friday the closing candlestick is pointing to more upside being expected. However it would be rare for the index to immediately recover without further weakness.
Friday should see a lot of sideways action, choppy trading in tight ranges, and a lower close.
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