The rally may have run out of steam on Wednesday. In the start of the day, thanks to earnings from Apple, the index jumped to 3293 but then tumbled within minutes to 3271 before a second, meandering rally clawed its way back to the morning high shortly after Fed Chair Powell’s interest rate announcement. From there it was downhill again into the close. The close was 3273 almost back to the morning low.
Comments from Fed Chair Powell began to sink stocks as he spoke about the need for the Fed to maintain its target of 2% inflation. There was no indication of any further interest rate cuts but instead it seemed to be more of a “wait and see” approach. Dropping interest rates would probably be the quickest way to inflation but the Fed remains determined to hold interest rates steady. That weighed on investors who decided to take more profits now and mull over what the Fed might do next later. This could stall the rally and may have set up Thursday for a move lower. Let’s take a look at the technical indicators after today’s close.
Stock Market Outlook Chart Comments At The Close on Wed Jan 29 2020
The SPX chart turned bearish on Friday Jan 24. Since then the candlesticks continue to point to weakness. Today’s closing candlestick is bearish as the index managed to push above the 21 day moving average but then closed back to the 21 day setting up the S&P to retest for support tomorrow.
The Upper Bollinger Band is now falling while the Lower Bollinger Band is holding to the 50 day moving average. We could see a Bollinger Bands Squeeze early next week unless the market action changes, which now seems unlikely.
The major moving averages are starting to lose momentum and the 21 day moving average turning 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.
For Thursday the chart is increasingly bearish.
Stock Market Outlook review of Wed Jan 29 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is negative and for the day the signal was unchanged from yesterday.
- 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 Wednesday, the sell signal was considerably 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 back 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 strong down signal in place for Thursday.
- 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 turned sideways.
- 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 turned sideways.
- 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 – Thu Jan 30 2020
For Thursday the technical indicators are pointing to growing weakness and a down day. MACD is very negative and the Slow Stochastic has a strong down signal in place.
Excellent earnings from Microsoft should help push Apple stock still higher and Tesla’s earnings were excellent, but other earnings were disappointing and investors sold off shares of companies like Facebook and PayPal strongly.
Thursday morning we get earnings from United Parcel Service which are important for the market and from Tractor Supply as well as Biogen. All of these will be important for the health of the market to start the day. An earnings miss from any one of these three will weigh on investors.
For now, the technical indicators are pointing to a move lower and a negative close on Thursday as the bias has changed to lower for the S&P.
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