Futures ahead of Tuesday’s opening were both up, then down and then up again and finally when the market opened, it opened higher but moved lower as investors heard that the G7 had no actual plan for dealing with the coronavirus outbreak. But then Fed Chair Powell announced what was called an emergency rate cut of half a percent, which initially sent the market roaring higher to above 3120 at 10:00 AM. However the news conference following the rate cut offered no real assurances for investors that the rate cut would provide more than a symbolic gesture. As analysts talked down the rate cut including advising that it could take over a year for its affects to be felt, investors were back selling and by 2:00 PM the index had broken through the important 3000 level.
From 2:00 to 4:00 PM investors were undecided as the index moved back to 3040 and then finally closed just above the important 3000 support level. It was an incredible day that ended with an 86 point loss for a drop of 2.81% and a close at 3003. The day was a knee jerk reaction to the Fed rate cut, which many investors worried meant that the effects of the coronavirus would be worse than feared, proven by the need for a so-called “emergency” rate cut. Overall it was a day of emotions with investors torn over whether the rate cut was big enough, would make any difference or would in fact be helpful.
Stock Market Outlook Chart Comments At The Close on Tue Mar 3 2020
The SPX chart is quite bearish and Monday’s rally was almost lost at one point. The close was right at the 3000 support level which is major support for the rally and goes back into 2019.
The closing candlestick is bearish for Wednesday. A sell signal was generated at the close with the 21 day moving average now below the 50 day and moving lower.
The 50 and 100 day moving averages are falling as well.
The 200 day is starting to turn sideways. Unless there is a rally, it too will turn lower shortly.
The market is back to being oversold but not to the extreme we saw by Friday last week. I am going “out on a limb” here. I think the drop on Tuesday was reactionary with high emotion especially following the lunch hour as the indexes slipped lower. I don’t think it broke Monday’s monster rally.
Stock Market Outlook review of Tue Mar 3 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is fell back again on Tuesday and is negative and 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 is still strong and is somewhat oversold. Despite the plunge on Tuesday, MACD shows a slightly rising signal.
- 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 turned sideways but did not fall back.
- 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 still has a strong up signal in place for Wednesday and is somewhat 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.
- 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 falling.
- 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 – Wed Mar 4 2020
The indicators are primarily advising that more downside should be expected for Wednesday. Despite this I think we will see the index try to regain its feet a bit. It may not be much of a move higher but I do think by the close there is a chance for the index to be positive.
MACD is losing a bit of strength, even with the plunge on Tuesday. The Slow Stochastic is still holding a strong up signal. The Ultimate Oscillator failed to fall but instead, turned sideways. These three hold out some hope that the index may regain a bit of strength to the upside.
There could easily be dips and probably a move down to 2950 should be expected, but even though the chart appears bearish and technical indicators are bearish, there should have been some further follow through from Monday’s big rally. We may see that on Wednesday. So for now, it’s a guess on my part but I think we could see a bit of stability although the sell-off is definitely not over, in my opinion. If Vice-President Joe Biden wins Super Tuesday, that too will add a bit of support to my “guess” for Wednesday.
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