Last week the media reported how the Dow had the worst one day point loss in history. On Monday they reported the Dow has the biggest one day point gain in history. The media is certainly having a “fun-time” reporting the volatility on the markets, but for investors, Monday’s surge, particularly the late afternoon rally to close almost at 3100, was welcomed relief.
So while Monday’s rally was sparked by an overbought market that was so extremely oversold that it was due to bounce and bounce hard, the question is, was a bottom of sorts, put in on Monday?
Stock Market Outlook Chart Comments At The Close on Mon Mar 2 2020
The SPX chart is still quite bearish but Monday’s big bounce did move the S&P back above the 200 day moving average.
Meanwhile the 21 day moving average is below the 50 day issuing a new sell signal at the close on Monday. The 50 day moving average is continuing to turn lower as is the 100 day. The 200 day is still climbing.
The bounce on Monday was huge in both scope, volume and breadth. The rally on the S&P was 4.6%, recovering slightly less than a third of the decline from Feb 20. The closing candlestick on Monday is bullish for Tuesday but also indicates that this is just a bounce at present.
The market is not as oversold as it was Friday at the close. The giant rally on Monday has burned through some of the overbought condition but the index still should be able to move above 3100. The 21 day falling below the 50 day though is a sell signal that could be warning of further downside once the rally slows. Let’s look at the other technical indicators to see what they show.
Stock Market Outlook review of Mon Mar 2 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rose for the first time in nine trading days and is not at extreme oversold levels but it is still negative.
- 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 extremely strong and is still somewhat oversold. The bounce has a good chance of moving higher 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 and not oversold.
- 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 for Tuesday and is still oversold. It is still advising there is more to the bounce to come on Tuesday.
- 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 bounced strongly on Monday and is moving out of oversold readings.
- 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 indicating higher prices are probable for tomorrow.
- 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 good support
2960 is light support
2900 is light support
2860 is light support
2840 is good support
2800 is strong support
Stock Market Outlook for Tomorrow – Tue Mar 3 2020
Little actually has changed except investors now expect a concentrated efforts but governments world-wide to increase liquidity in the markets including lowering interest rates. Aside from that “belief” the bounce was primarily caused by an extreme sell-off from last week which culminated in the start of a bounce in the afternoon on Friday which saw the NASDAQ close positive. The sell-off was so extreme that the market bounce was huge, which is common with this type of sell-off.
Tuesday should see some dips, particularly in the morning but the day should end with the index still higher. A repeat of Monday’s giant rally will not happen. Tuesday should see the S&P back above 3100 but from there we could see the index slip on Wednesday and retest below 3100 before trying to continue the advance. At present, the indicators look like the index could eventually make its way to 3200, possibly this week and then we will have to see what events will impact the markets. For tomorrow though, the outlook is higher by the end of the day, but be ready for morning dips.
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