Wednesday was all about continued coronavirus worries which were made worse by news that the WHO has now labeled this a pandemic. While most people assumed it already was a pandemic, this kind of “pronouncement” just adds more fuel to the angst of investors. They are continuing to unload stocks as the Dow Index fell to a technical bear market signal, falling 20%. The S&P and NASDAQ are not far behind.
Wednesday evening news from the White House did little to soothe investor concerns and with entry from Europe under a 30 day restriction most investors and analysts believe a recession is imminent. Perhaps the good news is with markets down pretty well 20% and many stocks down considerably lower, perhaps we are closer to the bottom than we think. My outlook is for a drop down to 2500 to test the 2018 December market sell-off bottom. Let’s hope I am wrong.
Stock Market Outlook Chart Comments At The Close on Wed Mar 11 2020
The SPX chart continues to be very bearish. The index closed the day below the 2800 support level setting the index up for another move lower.
There is a new sell signal on the index today with the 21 day falling below the 100 day. This is the second sell signal on the overall market.
All the moving averages are now turning lower including the 200 day. The 21 day is now heading toward the 200 day which will be a third sell signal if it falls below it.
The Lower Bollinger Band is falling rapidly which is a signal for more downside this week. The closing candlestick was inside the Lower Bollinger Band again which gives it more room to fall back again. The closing candlestick is bearish with a long tail which often signals a suspect bounce if there is one on Thursday which seems highly unlikely.
The index closed down 19.2% but fell to 2707 during the day. The biggest surprise at present is the Upper Bollinger Band which is continuing to move sideways when it should be turning lower. At present this is not signaling anything but it bears watching for a potential bigger bounce.
Stock Market Outlook review of Mar 11 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is negative and falling. It is not oversold.
- 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 stronger again on Wednesday and oversold.
- 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 falling but it is actually moving more sideways than up or down. Sometimes this forms before 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 is now 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 falling but not oversold.
- 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 a strong move lower is still underway.
- 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:
3000 is resistance
2960 is light resistance
2900 is light resistance
2860 is light resistance
2840 is light resistance
2800 is strong support
2745 to 2750 is light support
2725 is light support
2700 is strong support and marks a full correction of 20.4%.
2675 is light support
2650 is support
2625 is light support
2600 is good support and marks a correction of 23.3%
2550 is light support
2500 is good support and marks a correction of 26.3%
Stock Market Outlook for Tomorrow – Thu Mar 12 2020
Wednesday saw the index retrace to the low of Monday’s massive sell-off. Today was just as bad and in many ways it was worse as the giant rally from Tuesday was given back within the early morning trading. A lot of technical damage has been done in the market as support levels have been broken by the panic of investors fearful of the possibility of a global recession from the spread of coronavirus.
The technical indicators are not deeply oversold although some are getting back to extreme oversold signals but it will take another drop probably to 2675 or more likely 2650 to get the index to an extreme oversold position.
Unfortunately the technical indicators are all pointing to more selling and the Rate Of Change is signaling that we should expect lower prices than we have so far seen.
As stated before, protection is warranted especially once the 200 day moving average was broken. While at some point this correction will end, saying it, does not make up for the trauma of losses taken in portfolios.
The futures following the President’s address quickly collapsed to another 90 point drop for the S&P. That would place it at 2650. A bounce shortly after the opening might be in the works for Thursday, but it will be another chance to close out positions taken in the pullback on Wednesday and then setup more positions for the next drop lower.
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