Thursday saw the S&P move above the 2700 level reaching the highest point since the start of December. January ended today with a solid finish.
The S&P rose 7.8% in January almost recovering all the 9% loss of December 2018.
By the close, the S&P chart and technicals, as you will see below, ended January with impressive signals.
Stock Market Outlook Chart Comments At The Close on Thu Jan 31 2019
The S&P is still bearish with 6 sell signals, but the day also ended with the first buy signal.
The S&P chart is still bearish with 6 sell signals. That said, there are more bullish signs today by the close. The S&P ended the day above the 100 day moving average. That places it above the 100, 50 and 21 day moving averages. The index closed at the highest level since the start of December.
The Lower Bollinger Band and now the Upper Bollinger Band are turning higher indicating there is more upside ahead for the S&P.
The 21 day moving average is almost ready to push above the 50 day. When that happens it will be the first buy signal as the 21 day moving average has crossed the 50 day moving average. Unless the S&P will fall back below the 2600 over the next 3 weeks, we should continue see more buy signals appear as you can see that the first buy signal is right at the 2600 valuation.
The index today also closed above the 200 day moving average. We may see some selling tomorrow to push the S&P below the 200 day, but the index is definitely headed higher starting the month of February.
The closing candlestick on Thursday is bullish.
The Bollinger Bands are also bullish as both of them continue to rise rather than forming the Bollinger Bands Squeeze I discussed at the start of this week. Overall there are signs the rally has more staying power.
Stock Market Outlook review of Thu Jan 31 2019
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is positive and was rising on Thursday.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued an up signal on Fri Jan 4 2019. That up signal was stronger today.
- 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 and nearing overbought.
- 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 up signal in place for Friday is still overbought.
- 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 rising and overbought.
- 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 turned sideways by the close which indicates we are probably going to see some further selling pressure with the index above 2700.
- 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 support
2650 is support
2625 is light support
2600 is support.
There was good support at the 2550 level which is back to being support.
The 2500 level is support.
The S&P has light support at 2480 and better support at 2450.
There is 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 full bear market signal ending the bull market from 2009.
Stock Market Outlook for Tomorrow – Fri Feb 1 2019
Historically Feb is the weakest of the so-called “Best 6 Months”. However historically the first day of February has been up 80% of the time for the last 16 years.
The technical indicators have no down signals but there are two overbought and one sideways signal. This means we will see some weakness as sellers will take advantage of the rise today in the S&P above 2700. That said, there are stronger buy signals from the Moving Average Convergence / Divergence technical indicator and the Slow Stochastic.
There are bound to be dips on Friday and a drop below 2700 will happen. However the downside may not be more than 2685 or 2690 on Friday. The close should be higher as the Fed-induced rally should last another day.
January Non-Farm Payroll Numbers
On Friday at 8:30 AM we get the non-farm payroll numbers for January. These numbers may be weaker due to the government shut down, and indeed we could see some selling because of it. However I don’t think these numbers will have a lot of impact unless they end up being better than expected. If they are, that will assist in boosting the index further.
I normally put together a trade ahead of the unemployment numbers however since I put together a trade on Wednesday ahead of the Fed decision on interest rates, there was no value in setting up another similar trade for January’s employment numbers.
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