Tuesday March 17 saw stocks move lower and then bounced three times, as news from the White House of a stimulus package of enormous size caught the attention of investors. By the close of the day investors were calmer as many believe the government is planning on “pulling out all the stops” to rescue the economy and recover as quickly as possible from the COVID-19 epidemic. With more almost daily news conferences, many investors are now of the opinion the government may have got the message and is moving faster. That created the ground work for another 1000 point rally on the Dow Jones and a 6% rally on the SPX and slightly more than 6% on the NASDAQ. This though still looks like a rebound rally after an enormous collapse on Monday, but it is also a start to try to calm investors into the knowledge there is light at the end of the COVID-19 tunnel, even if it is a bit longer than investors have become accustom to.
Stock Market Outlook Chart Comments At The Close on Tue Mar 17 2020
The SPX chart continues to be very bearish. In the morning the S&P fell to a new bear market low of 2367 just 23 points away from my goal of 2344. That was at 10:00 AM and the market recovered and rallied all the way to 2550 by 12:13 PM. But the bounce was typical of a bear market rally as it recovered roughly half of the prior day’s losses. This is a typical bounce and the closing candlestick indicates it was indeed a bounce, with the candlestick moving once more back inside the Lower Bollinger Band signaling a possible dip again on Wednesday.
The index closed near the highs of the day. The Upper Bollinger Band turned back down which is a bit troubling and the 3 sell signals in the chart are continuing to gain momentum or the downside.
All the moving averages are moving lower with the 50 day back below 3200 and the 21 day falling below the 3000 valuation.
The Lower Bollinger Band is falling rapidly which is a signal for more downside this week. The index today fell 1026 points for a 30.2% decline from the Feb 19 all-time high of 3393. Overall the chart is ugly for equities but let’s see what the technical indicators advise for Wednesday.
Stock Market Outlook review of Tue Mar 17 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising, negative and oversold. You can see in the chart that each rally has created a lower spike. We need that to reverse and see stronger momentum spikes.
- 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 extremely strong on Tuesday at -50.36 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 moving sideways but again you can see that each prior rally is setting up a pattern of lower spikes. That too needs to reverse.
- 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 an up signal in place and is extremely 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 and no longer 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 rising but each prior spike high has also been lower which also needs to reverse. Right now the rate of change is indicating prices are not going to rise quickly and have a better chance of falling lower.
- 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 resistance
2550 is light resistance
2500 was good support and marked a correction of 26.3%
2344 is the next level of support and marks a 30.9% correction.
2100 is light support
2000 is good support and marks a 41% correction.
Stock Market Outlook for Tomorrow – Wed Mar 18 2020
For Wednesday the futures show the market may open lower by roughly half of the rally. That would be okay for the market if it happened and would probably bring in buyers who missed the spike higher on Tuesday. Many stocks have held up better than others such as Walmart, Amazon, Walgreens Boots Alliance Stock (WBA), Apple and Microsoft plus most of the pharmaceuticals and utilities. They are lower in this bear market, but on Tuesday they had nice moves up. Even some of the beaten down financial stocks both in the US and Canada rose although not the insurance companies which investors continue to stay clear of.
Many investors are on the sidelines and they missed the huge jump on Tuesday in selective stocks. A drop on Wednesday should affect most stocks including those that rose on Tuesday. In my opinion this will bring in investors who missed the rally on Tuesday.
If you look at the sell-off this week, Monday was horrendous and Tuesday recovered 50% of Monday’s losses. On Wednesday if markets give back 50% of the gain made on Tuesday at the open, then I think we will see buyers stepping in because it means a bottom of sorts in specific sectors or stocks is probably near and many investors are anxious to jump back in. This may not happen and indeed I don’t think this will be the only opportunity for buying stocks at lows. Remember the Oct 2008 decline of 30% which saw seasoned investors like Buffett buy into stocks only to find out that in March 2009 the real bottom was another 20% lower. The difference then though was the March bottom did not include all the stocks that had fallen by October 2008. Many of the stocks in October 2008 made a bottom and then failed to fall that extra 20%.
For Wednesday then I think we are looking at a choppy day with a lower move at the open or early morning and then a bounce. The bounce may not be above Tuesday’s high, but it will still be above the morning low.
Stock Market Outlook Archives
Stock Market Outlook for Wed Apr 24 2024 – Some Weakness But Higher Close
Morning Investing Strategy Notes for Tue Apr 23 2024
Stock Market Outlook for Tue Apr 23 2024 – Bounce But Lower
Morning Investing Strategy Notes for Mon Apr 22 2024
Stock Market Outlook for Mon Apr 22 2024 – No Change – Deeply Oversold Bounce Possible
Morning Investing Strategy Notes for Fri Apr 19 2024
Stock Market Outlook for Fri Apr 19 2024 – Deeply Oversold – Bounce Likely – Higher Close
Morning Investing Strategy Notes for Thu Apr 18 2024
Stock Market Outlook for Thu Apr 18 2024 – Deeply Oversold – Bounce Attempt Expected
Morning Investing Strategy Notes for Wed Apr 17 2024
Stock Market Outlook for Wed Apr 17 2024 – Another Bounce Attempt
Morning Investing Strategy Notes for Tue Apr 16 2024
Stock Market Outlook for Tue Apr 16 2024 – Deeply Oversold
Morning Investing Strategy Notes for Mon Apr 15 2024
Stock Market Outlook for Mon Apr 15 2024 – Expect A Bounce
