Thursday saw another new correction low but as it broke to its lowest level yet, selling slowed considerably late in the day. This resulted in a reversal which as it rose found ready buyers. This could signal a bigger bounce coming on Friday as stock index are signaling extremely oversold.
The S&P closed down 5 points to 3930, closing back above 3900. Intraday the index fell to 3858.
The NASDAQ rose 6 points to close at 11,370.
Let’s review the closing technical indicators from Thursday to see why we should expect a bounce on Friday.
Stock Market Outlook Chart Comments At The Close on Thu May 12 2022
On Thursday the day ended with a bearish candlestick again but with a strong signal of an impending bounce, started late in the day on Thursday.
Note that while the Lower Bollinger Band is still falling, the Upper Bollinger Band is now turned sideways, a signal of an impending bounce.
All moving averages are still bearish and there are still three sell signals in the index. All the major moving averages are falling including the 200 day. The 21 day is falling rapidly and the 100 day is down at the 200 day and ready to fall below it. That though shouldn’t happen on Friday.
The chart is 85% bearish for Friday. All the bounces over the past three weeks have failed but this bounce is from 220 points lower.
Stock Market Outlook review of Thu May 12 2022
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling and negative. It is at the lowest level since Jan 27. That resulted in the rally from Jan 28 to Feb 2, a 4 day rally.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal Friday April 8. On Thursday the down signal strengthened. The MACD histogram also gained strength to the downside. Both are at levels that normally will see a bounce.
- 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 rising, negative and near oversold signals.
- 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 and has extreme oversold signals. These are the type of signals that see significant bounces.
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 into 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 unchanged and remains at levels where normally a bounce could be expected.
- 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:
4400 is resistance
4370 is light support
4350 is light resistance
4300 is light resistance
4290 is light resistance
4270 is light resistance
4250 is resistance
4225 is light resistance
4200 is light resistance
4150 is light resistance
4100 is light support
4050 is light support
4025 is light support
4000 is good support
3975 is light support and is a decline of 17.5%
3900 is light support and is a decline of 19%
3850 is good support and is a decline of 20%
3600 is good support at is a decline of 25%
Stock Market Outlook for Tomorrow – Fri May 13 2022
On Thursday the S&P came within 8 points of the important 3850 support level. This resulted in a push higher into the close. This move higher was reflected in the closing candlestick and in the technical indicators which are all pointing to a bounce that should last more than a day. The last time the signals were this strong for a bounce was Jan 27. That bounce lasted 4 days before the index turned sideways. It recovered 264 points. A similar rally is expected starting Friday.
There are just two potential market moving events on Friday which are shown below. Unless the 5 year inflation expectations or consumer sentiment index flash warnings signs, the oversold rally should start before the open.
I will be buying $SPY ETF calls at the open or within the first 5 minutes on Friday.
Potential Market Moving Events
Friday:
10:00 Consumer Sentiment Index (UofMich)
10:00 5 Year inflation expectations (UofMich)
Stock Market Outlook Archives
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Morning Investing Strategy Notes for Tue May 5 2026
Stock Market Outlook For Tue May 5 2026 – Overbought and Lower
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Stock Market Outlook For Fri May 1 2026 – Overbought But Higher
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Stock Market Outlook For Thu Apr 30 2026 – Dips Likely Possible Lower Close
Morning Investing Strategy Notes for Wed Apr 29 2026
Stock Market Outlook For Wed Apr 29 2026 – Choppy But Higher Ahead Of More Earnings
Morning Investing Strategy Notes for Tue Apr 28 2026
