I have been discussing the strong overbought condition for two weeks now and this week I have discussed the growing weakness in the market in general. Today all it took was some negative news mixed with an overbought market, to send stocks lower. Losses though were mild on Thursday with extremely small losses.
Stock Market Outlook Chart Comments At The Close on Thu Feb 21 2019
The S&P is still bearish with 6 sell signals but there are also 3 up signals in place as well starting from Jan 31.
The 200 and 100 day moving averages are not changing and both are continuing to slowly fall. The 50 day is rising slowly. The 21 day moving average is back leading the market, which is a strong signal that the index is trying to recover from the damage done from October to December 24 2018.
The index closed above the 200 day moving average but the closing candlestick is a bearish for Friday.
The Lower Bollinger Band and the Upper Bollinger Band are still climbing indicating there is more upside ahead for the S&P. Note though that on Thursday the Upper Bollinger Band turned sideways which often is a warning that a change could be coming shortly to the underlying index.
While there are still strong sell signals to contend with, the chart is not as bearish as it has been. What we need to see now is one of the three major averages to recover. The best would be for the 50 day to move back above the 200 and the 200 to fall below the 100. So far there are no indications that will happen soon.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is positive and falling.
- 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 weak again on Thursday but still pointing up for the market.
- 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 was falling on Thursday and 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 a down signal in place for Friday and is very 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 falling and signaling 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 is falling indicating prices are not expected to rise for the next couple of days.
- 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 support
2700 is light support
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 22 2019
The overall outlook is for the rally to continue, just not on Friday.
For Friday the index will turn sideways and end the day mixed. There is more bias for a slightly lower close for Friday, than a higher close but neither side has the stronger outlook. Some technical indicators are pointing lower and some are pointing sideways for the underlying market direction.
We could see the start of the day weak, but then a move higher by the bulls in the mid-morning, with a dip back to negative late morning and into the lunch hour. The close should be negative.
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