With Monday’s market deeply oversold it just needed a spark to bounce on Tuesday. That spark was hope for a stimulus package to stave off the potential of a coronavirus induced recession. By the end of the day the final hour of trading was aided by a rise in the price of oil. Overnight though the news of more coronavirus cases has investors once again nervous with the futures showing a large drop for the start on Wednesday.
Let’s look at the technical indicators from Tuesday’s trading to see what they might tell us about Wednesday’s trading.
Stock Market Outlook Chart Comments At The Close on Tue Mar 10 2020
The SPX chart continues to be very bearish. The index closed the day well below the 3000 support level at 2862.
The 21 day moving average continues to decline further since the confirmed sell signal of March 2. All the moving averages are now turning lower including the 200 day. The 21 day is almost ready to fall below the 100 day for a second sell signal.
The Lower Bollinger Band is falling rapidly which is a signal for more downside this week. The closing candlestick was back inside the Lower Bollinger Band which gives it more room to fall back again. The closing candlestick is bearish with a long tail which often signals a suspect bounce.
Stock Market Outlook review of Tue Mar 10 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is negative and 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 Feb 21. The down signal was still strong on Tuesday.
- 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 but still negative. Normally this looks like a bounce.
- 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 for Wednesday and not yet oversold.
- 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 rising but still signaling lower prices are ahead.
- 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:
3400 is resistance
3300 is resistance
3200 is resistance
3100 is light resistance
3075 is light resistance
3000 is resistance
2960 is light resistance
2900 is light resistance
2860 is light resistance
2840 is light resistance
2800 is strong support
2700 is strong support and marks a full correction of 20.4%.
Stock Market Outlook for Tomorrow – Wed Mar 11 2020
It would be rare if the collapse on Monday were a one day event. Normally we will see at least the lows retested which we may see happen on Wednesday. All the technical indicators are not showing improvement enough to believe the market can bounce higher again on Wednesday. Instead the outlook is for the market to open lower, try to rise, fail and fall back, perhaps as low as the Monday low of 2734. There is a good chance the SPX could touch 2700 on Wednesday. If 2700 breaks, the index may be setting up for a deeper move to the 2500 level later this week or next which would place it back at the late 2018 correction levels. For now, Wednesday promises to be volatile with some big swings and a negative close. Let’s hope 2700 can hold the sellers back.
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