Following another horrendous day on Tuesday, some of the technical indicators still held out some hope for the rally that had started on Monday, to resume on Wednesday. Indeed it did with the second best one day rally in history. The past 8 trading days have been among the wildest since the financial crisis of 2008 – 2009. The difference here though is that investors are reacting to what essentially is an unknown outcome. There is however a big difference between a credit crisis that turned many banks insolvent and collapsed property prices world-wide to a virus scare that may disrupt earnings for two or three-quarters. Today’s rally was also on the back of a resounding Super Tuesday win by Joe Biden to lead the Democratic Party in the upcoming Presidential elections. Investors staged another relief rally and jumped back into stocks in a big way on Wednesday.
Stock Market Outlook Chart Comments At The Close on Wed Mar 4 2020
The SPX chart is still quite bearish and Wednesday rally helped push the index back above the 3100 level and the 200 day moving average, but it has not changed the sell signals.
The sell signal from Friday continued to gather momentum today with the 21 day moving average falling further below the 50 day. However this is not a leading indicator and often this sell signal is quickly recovered if the index continues to advance for a day or two longer.
The 50 and 100 day moving averages are still falling and the 200 day moving average is no longer climbing.
The market is not as oversold as it was on Friday, Monday and Tuesday and that will mean some weakness will be seen tomorrow morning. The candlestick at the close today however is bullish and while it is often followed by a day of weakness, it usually signals further upside to the rally lies ahead.
Stock Market Outlook review of Wed Mar 4 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is negative but rising and no longer 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 was considerably weaker on Wednesday.
- 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 no longer negative.
- 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 Thursday and is no longer 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 indicating higher prices lie ahead.
- 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 support
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 – Thu Mar 5 2020
A second big rally for the week will almost always be followed by some weakness in the morning on Thursday. A test as low as 3100 or even 3085 could in the cards for Thursday but the chance of a further decline such as we saw on Tuesday is unlikely unless something much worse arrives from the coronavirus scare.
The outlook for Thursday is for morning weakness but a slightly higher close. Dips on Thursday are trading opportunities and I will be placing some trades Thursday in any dips.
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