Tuesday saw the biggest one day rally for the Dow Jones since June 1931. Stocks soared on the prospects of the coronavirus stimulus bill being passed shortly. The market was so extremely oversold that once buying started, investors jumped in the higher the market went.
By the end of the day the S&P was up 9.3% to 2447 and back above the support at 2344.
Stock Market Outlook Chart Comments At The Close on Tue Mar 24 2020
The SPX chart continues to be very bearish.
On Tuesday, despite the massive rally, the 100 day moving average is at the 200 day marking a 4th sell signal in the chart below. For the first time however the Lower Bollinger Band has turned sideways which might indicate a slowing of the selling. The Upper Bollinger Band however is continuing its decline.
The closing candlestick is signaling that this was just a bounce, a big one, but a bounce nonetheless.
There are now 4 sell signals in the chart. Yesterday I indicated in the Stock Market Outlook that it is common to see a bounce attempt just before the 100 day falls below the 200 day moving average. We saw that happen on Tuesday.
All the moving averages are plunging but the 21 day is in a relentless tumble lower.
Overall the chart is ugly for equities. You can see in the candlesticks that while Tuesday’s bounce was good, it basically just place the index back in a sideways pattern from last week. It has not broken through the sell-off at all.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising and still negative although not as oversold. It is still very bearish showing a strong declining balance marking a pattern of lower spikes. On Tuesday the spike placed it back into the same channel but did not break the downward pattern.
- 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 is still quite strong but it lost a bit more strength on Tuesday in the rally.
- 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 still rising and is now back at the higher levels in the past string of spikes, but it has not broken above them. That remains bearish.
- 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 deeply 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 also rising but it too has failed to break above the past spikes which are marked in the chart above. This is bearish.
- 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:
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 – Wed Mar 25 2020
With the bill passed the market may search for another event to try to build a higher push on. Right now though it looks unlikely.
Therefore we could see the market attempt to climb on Wednesday but fail to gain much traction. Overall its looks like the index will push slightly higher and then dip back by the close of the day on Wednesday.