Thursday saw stocks fall at the open of trading and then stage a number of rallies including a late day rally to close at the highs of the day. The index fell below 2800 reaching 2794, the lowest level since April 24. That brought in buyers. By the close the index was back to 2852 but still below the 21 day, 100 and 200 day moving averages. The index was however still inside the Bollinger Bands Squeeze which is often a bullish signal.
Part of the drop in the morning was caused by the release of the Weekly Initial Unemployment Insurance Claims which showed around 3 million more claims for the week which brings the total to around 36.5 million unemployed, a staggering number. The afternoon though, got a boost from MasterCard which indicated they were noticing an upturn in the number of credit card charges which indicates consumers are starting to buy again.
Let’s look at Thursday close to see what the technical indicators are advising for Friday.
Stock Market Outlook Chart Comments At The Close on Thu May 14 2020
The SPX chart continues to be bearish with 6 sell signals in the chart and a Bollinger Bands Squeeze that is still underway. There is one up signal from May 1 with the 21 day moving average, back above the 50 day.
The closing candlestick was bullish for Friday. The index closed below the 200, 100 and 21 day moving averages. It closed back inside the Bollinger Bands Squeeze.
The 200 day moving average is still leading the market, which is typical in a bear market. It is still followed closely by the 100 day. The 100 day is continuing to not fall further but is trending sideways with the 200 day. Normally this is somewhat bullish. The 50 day is continuing to fall while the 21 day is moving higher but is turning sideways and does not look like it will climb much further at present.
The Bollinger Bands Squeeze is underway and is showing signs the index may move lower out of the squeeze. The Lower Bollinger Band is above the 50 day and the Upper Bollinger Band is at the 200 day, both of which are normally bullish in a rally. While the chart is still bearish there are growing signs that the lows of March may not be revisited unless a new catalyst to the downside should appear.
Stock Market Outlook review of Thu May 14 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising but still negative.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued an unconfirmed down signal on Wed May 13 2020. The down signal was confirmed 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 and back positive.
- 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 in place.
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.
- 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 trying to rise.
- 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:
3000 is strong resistance
2950 is resistance
2900 is resistance
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 and most analysts believe this is the low point we will see.
2100 is light support
2000 is good support and marks a drop of 1393 points for a 41% correction. Some analysts believe the index will fall this low before the bear market ends.
Stock Market Outlook for Tomorrow – Fri May 15 2020
At the close of trading on Thursday the MACD down signal was confirmed. This would direct investors to stay cautious that the rally we saw on Wednesday afternoon, is just a bounce. The 2800 level was tested once more on Thursday and held the market up. From here however, the index is back pushing through overbought signals and stocks that are overpriced. At the same time, the rally back on Thursday afternoon shows that buyers are ready and willing to jump into stocks on signals that the economy may improve quicker than originally thought. Just a bit of positive news from MasterCard was enough to jump buyers back into stocks and end the day positive.
For Friday, stocks look set to try again to move higher but it won’t take much to bring back sellers. That means the sideways trend is continuing to stay with stocks at present.
Friday should see a flat or sideways move in the index, to end higher by the close of trading.
The MACD sell signal could disappear quickly if the index moves higher over the next several trading days. Otherwise the signal will be right and stocks will pullback. For Friday we should see a sideways pattern with a bias higher to start but the sell signal could come into play by early next week. We should know more by the close on Friday.
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