The blow off that was expected finally happened on Thursday as investors decided to take profits from the big run-up in stocks, particularly tech stocks, ahead of the August unemployment report and the long Labor Day weekend. Technical indicators had been warnings for days that the market was setting up for a possible correction from the overbuying. By the end of the day the S&P was down 3.5% at 3455, the Dow Jones was down 2.78% at 28,292 and the NASDAQ saw the worst selling as it fell almost 5% to close at 11458.
Here are the technical indicators after the sell-off on Thursday.
Stock Market Outlook Chart Comments At The Close on Thu Sep 3 2020
On Thursday the closing candlestick is bearish but also signals the potential for a failed bounce on Friday.
The Lower Bollinger Band is just above the 50 day moving average again which is bearish.
There are still 6 up signals and two down signal caused when the Lower Bollinger Band moving above the 100 day moving average back on July 27 and on Aug 31 above the 50 day.
The 21, 50, 100 and 200 day moving averages are continuing to climb. The SPX chart is still bullish but the index did reach the 21 day moving average which almost always signals a bounce attempt and then possibly more selling. The loss today was the biggest since a 188 point loss on June 11 in the S&P.
Stock Market Outlook review of Thu Sep 3 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is 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 Monday Aug 24. That signal was weaker 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 is falling.
- 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 and 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 falling.
- 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 we shouldn’t expect big moves on Friday in prices.
- 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:
3600 is resistance
3500 is resistance
3450 is support
3400 is support
3375 is support
3300 is support
3275 is support
3200 is support
3150 is support
3050 is support
3000 is support
2975 is light support
2950 is light support
2900 is light support
Stock Market Outlook for Tomorrow – Fri Sep 4 2020
Once selling started on Thursday, more investors joined in and as the losses piled up in tech stocks, even more investors were drawn in. It was a typical sell-off day on Thursday which could signal a short-term top in the rally that certainly got ahead of itself, especially in tech stocks.
The technical indicators are still showing parts of the market as still a bit overbought but the drop on Thursday often signals a bounce attempt on the following day.
On Friday at 8:30 investors get the August employment numbers. That could weigh on investors but more likely it will be the long weekend that dictates what investors decide to do on Friday.
Watch in the morning near the open to see if selling continues and then turns sideways. That often signals a bounce is coming. If on the other hand stocks open higher, look for them to pullback after a higher open.
With the long weekend coming up, a lot of investors will not want to hold too many positions over the weekend. As such, many investors will be content to take the profits they already have made. Friday should end lower but next week we should get a better idea whether this is a typical sell-off as we have seen so many times in the past, where stocks recover quickly, or a top of sorts, that drags through much of September.
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