The rally on Tuesday recovered 60% of Monday’s losses. This is better than most typical bounces which is a good sign for the bulls.
The S&P ended the day up 32.61 to close at 3276.24 for a gain of 1%.
Stock Market Outlook Chart Comments At The Close on Tue Jan 28 2020
The SPX chart turned bearish on Friday with a long red candlestick almost reaching the 21 day moving average. The drop on Monday took the index below the 21 day but also setup the bounce we saw on Tuesday. The close on Tuesday is back at the 21 day moving average. You can see how important the technical indicators are. With the index now back to the 21 day the question is whether the index will pullback after Tuesday’s bounce, or build strength for a move still higher.
The Lower Bollinger Band is falling as is the Upper Bollinger Band.
All the major moving averages are still climbing. Only the 21 day moving average is beginning to turn lower.
There are four support levels in place. These are 3200 which may get tested this week, 3100 which is a full 100 points lower, 3075 which is light support and 3000 which is major support.
On Wednesday we get the Fed’s decision on interest rates. I am expecting no change, but that could work to support the market’s advance. We will definitely know by Wednesday’s close.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is negative but the day’s rally has momentum rising.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Friday Jan 24. At the close on Tuesday, the sell signal was stronger.
- 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 not overbought and is rising.
- 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 is not overbought and has a down signal in place for Wednesday.
- 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 has bounced off an oversold signal and is moving up.
- 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 also bouncing off an oversold signal.
- 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:
3325 is resistance
3200 is light support
3100 is light support
3075 is light support
3030 is very light support
3000 is good support and if the S&P fell this low it would mark a normal correction in a bull market
2960 is light support
2900 is light support
2860 is light support
2840 is good support
2800 is strong support
Stock Market Outlook for Tomorrow – Wed Jan 29 2020
For Wednesday the technical indicators are not strong and those that are rising are fighting two strong sell signals from MACD and the Slow Stochastic.
For now Wednesday looks like the bounce will be tested but since Monday was more a reaction to unconfirmed fears, there is a good chance the market can hold and try to regain its footing.
Apple should move higher and that will assist the overall market although warnings from AMD and Starbucks on the outlook is the coronavirus worsens may hold investors back from trading.
The best that can be said for the outlook is for the market to be choppy but hold a bias higher. Expect dips however but for now, they are opportunities to setup trades.