Wed Mar 18 2020 saw panic selling, especially early to mid afternoon. Whether it was margin calls, sheer panic, robo selling or algorithms it doesn’t matter. The selling was enormous and swift and it shoved the S&P to an intraday low of 2280 for a dive of 1113 points since the 52 week high back on Feb 19. That certainly seems like a long time ago but as of tomorrow it is just a month. The index closed at 2398 for a 5.1% loss on the day and a 29.3% loss since the all-time high. It was another horrendous day and is certainly a déjà vu moment of the 2008 to 2009 collapse.
In the credit crisis collapse the S&P dropped 27% in less than a month from Sep 19 to Oct 9 2008. By Oct 16 it was down 31% but the worst collapse was to Nov 21 when intraday it hit a 41% decline. The period from Sep 19 to Oct 9 was horrendous. The period from Oct 9 to Oct 16 seemed like a cake walk as analysts and investors were numb from the intensity of the collapse. This bear market feels exactly like that. The difference is in that collapse everyone thought the world banking system was going to collapse and bring about a second Great Depression and by November 21 when the S&P was down a stunning 41% I had to wonder as well. Little did any investor know that the worst came in March 2009 but also the end of that bear market.
In this bear market its not the banking sector but fear of a global recession mixed with what seems like an unstoppable pandemic virus. Tomorrow could see more selling but let’s hope sellers are running out of stock they want to liquidate. One of the problems of course is the high number of investors, both professional and retail that use large amounts of margin. In a meltdown, eventually there will be margin calls and most have no choice but to sell to cover the margin calls. That means more dumping of shares which pushes the market lower and causes even more margin calls, especially at present levels.
Stock Market Outlook Chart Comments At The Close on Wed Mar 18 2020
The SPX chart continues to be very bearish. Today the S&P fell through my goal of 2344, reach 2280 before bouncing in the final hour to close at 2398. The closing candlestick is bearish but with a long tail it often also signals a potential bounce coming up. With the candlestick back inside the Lower Bollinger Band there is a good chance for another close still lower.
The Upper Bollinger Band is continuing to turn down which is a bit troubling and the 3 sell signals in the chart are continuing to gain momentum to the downside.
All the moving averages are moving lower with the 50 day back below 3200 and the 21 day falling well below the 3000 valuation.
The Lower Bollinger Band is falling rapidly which is a signal for more downside this week. The index today fell 1113 points intraday so far for a 32.8% correction from the Feb 19 all-time high of 3393.
Overall the chart is ugly for equities as are most of the technical indicators advise for Thursday.
Stock Market Outlook review of Mar 18 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling, 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. Right now it is very bearish.
- 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 is still very strong but it is not as strong as it was on Monday’s big down day so you never know, maybe a bounce is coming. Right now though that seems unlikely.
- 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 a down 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 moving sideways and just slightly 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 and each prior spike higher has also been lower which again we need to see reverse. Right now the rate of change is indicating prices are not going to rise quickly and have a better chance of falling still 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 resistance
2745 to 2750 is light resistance
2725 is light resistance
2700 is strong resistance and was a drop of 20.4%.
2675 is light resistant
2650 is resistance
2625 is light resistance
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 drop of 1393 points for a 41% correction. More analysts are jumping onto this level as where the correction is heading.
Stock Market Outlook for Tomorrow – Thu Mar 19 2020
In case you have not checked the support and resistance levels, I just want to mention that the 2344 level was good support and marked a 30.9% correction. More analysts are beginning to believe the correction is heading to 2000 which is a 41% correction. Considering the panic on Wednesday afternoon and volumes, let’s hope they are wrong.
Yesterday I indicated I am watching many stocks that 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 Wednesday quite a few continued their advance so this market is not completely without winners.
Yesterday I wrote in the outlook notes that I expected investors to sell-off about another 50% on Wednesday and then set the index up for a bounce. That was certainly wrong although the close on Wednesday of 2398 is higher than Monday’s close. However the intraday low was much worse and that usually means more downside.
For Thursday I am expected more downside but there is still a possibility for a bounce attempt. It will more likely fail but it can assist to stall the decline and give the government more time to convince investors that this is not the end of the world, at least not just yet.at extra 20%.
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