Thursday’s market collapse was a culmination of a number of events. These included Fed Chair Powell’s comments about keeping interest rates at zero into 2022 and comments on the “state” of the economy. This got investors wondering if the reopening will not have the economic “punch” as quickly as originally anticipated. Add to that growing concerns about increasing COVID-19 cases in a number of states and it was the perfect storm for equities. Sellers started right at the outset into dumping shares of those stocks that had rebounded over the past two months including airlines, leisure and of course banks. Banks have taken a pounding in any correction since the 2008 credit crisis as investor remain wary of bankers who claim “everything is fine” with the balance sheet and dividend. On Wednesday banks again were hit hard. Let’s look at the closing technical indicators to see what they are predicting for Friday.
Stock Market Outlook Chart Comments At The Close on Thu Jun 11 2020
The S&P closed below the Upper Bollinger Band again on Thursday for the third day but despite the massive selling, the index closed at the 21 day and above the 200 day moving average. We will need a couple more trading days to determine if the index will stay above the 200 day moving average. The candlestick is bearish for Friday, but it is also a typical candlestick normally seen before a bounce back day.
The S&P has been above the 200 day moving average since May 18, which remains bullish as explained above.
With 3 major up signals in the chart (see below) the 21, 50 and 100 day moving averages are all climbing higher. The 100 day moving average is ready to move above the 200 day which will be another up signal. That did not change on Thursday despite the heavy selling.
The Upper Bollinger Band is starting to dip lower while the Lower Bollinger Band is starting to move back higher. Often this is the start of a Bollinger Bands Squeeze which at the present time is a bearish signal.
The SPX chart is bullish unless the index slips below the 200 day moving average. That will be a bearish signal.
Stock Market Outlook review of Thu Jun 11 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling and turned negative 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 Tuesday May 19. The up signal was almost gone on Thursday and it won’t take much for a sell signal to be issued.
- 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 is falling rapidly and turned negative.
- 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 strong down signal for Friday and is no longer 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 is nearing oversold readings.
- 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 will continue lower.
- 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:
3200 is resistance
3150 is resistance
3050 is support
3000 is support
2950 is light support
2900 is light support
2860 is light support
2840 is light support
2800 is good support
2725 is light support
2700 is light support and marked a drop of 20.4%.
2675 is light resistant
2650 is light support
2625 is light support
2600 is support
2550 is light support
2500 was good support and marked a correction of 26.3%
2344 is the next level of support and marks a 30.9% correction.
2191 was the market low on March 23
2100 is light support
2000 is good support and marks a drop of 1393 points for a 41% correction. Some analysts still believe the index will fall this low in the second half of 2020.
Stock Market Outlook for Tomorrow – Fri Jun 12 2020
For Friday we should see a large bounce attempt in the morning but there will also be some selling. The technical indicators have shifted due to Thursday’s selling and are now pointing to a lower market.
I had expected a down day on Thursday but nothing as deep as we saw. On Friday we should see a bounce attempt and then more selling. There is a good chance Friday will end with the SPX above Thursday’s close of 3002. The next question though will be what will Monday bring for equities. A lot will depend on how strong the bounce is and where the close is on Friday.
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