Tuesday Jan 7 saw stocks stay under selling pressure and indexes closed slightly lower with some heavier selling into the close.
The Iran missile attacks Tuesday evening sent stock futures lower initially but they recovered as the evening progressed as most analysts reported they felt Iran was trying to “save face” with its citizens and had to act. What, if any, retaliation will be next is hard to determine and that is what will probably keep stocks more volatile Wednesday or certainly in the morning. The President indicated the evening that he plans to speak Wednesday morning. That may see the market react more favorably.
Tonight though it is still worth a look at the technical indicators as there are new down signals to review which could signal a change to the downside for a few days. Let’s take a look.
Stock Market Outlook Chart Comments At The Close on Tue Jan 7 2020
The SPX chart continues to be bullish but the closing candlestick on Tuesday is bearish for Wednesday.
The Upper Bollinger Band is starting to turn sideways which is bearish, while the Lower Bollinger Band is turned up, which is bullish but we could see another Bollinger Bands Squeeze shortly.
All the major moving averages are still climbing and there are now four support levels in place. 3200 is very light support while 3100 and 3075 are better support. The best support is down at 3000.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is positive and 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 Friday Dec 13. On Tuesday MACD issued an unconfirmed down signal.
- 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 overbought and 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 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 also falling.
- 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:
3250 is resistance
3200 is light support
3100 is light support
3075 is light support
3030 is light support
3000 is support
2960 is light support
2950 was light support
2900 is light support
2860 is light support
2840 is support
2800 is strong support
Stock Market Outlook for Tomorrow – Jan 8 2020
Aside from the Iran missile strikes, you can see that the technical indicators were already pointing to a down day coming up for Wednesday.
MACD in particular is discouraging as it signaled an unconfirmed down signal followed by a strong down signal from the Slow Stochastic.
All the other indicators except for the Ultimate Oscillator, are signaling lower as well.
It was therefore not the missile strikes that turned the market from up to down for Wednesday but the technical indicators which were already showing weakness for tomorrow.
I don’t think the selling on Wednesday will be all that strong despite the futures warning that the Iran missile strikes have investors worried.
We should see more volatility on Wednesday and a slightly lower close but overall the bull market is very much in charge. This though could be a day or two of negative closes coming up.
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