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Stock Market Outlook for May 23 2016 – Bounce Is Suspect – Bias Lower

May 22, 2016 | Stock Market Outlook

The stock market outlook for Friday was for stocks to bounce. They did just that but now with the start of a new week, stocks have to prove they can rally back. Thursday had seen technical damage done when the SPX broke to 2025. Friday saw the SPX rally to 2058 but then drift lower to close at 2052.32. Monday will be a pivotal day for stocks.

S&P Index Close

The S&P closed at 2052.32 up 12.28 for a gain of 0.60%.

Dow Jones Index Close

The Dow Jones closed up 65.54 points for a modest gain of 0.38%.

NASDAQ Index Close

The NASDAQ closed up 57.03 points for the best gain among the three indexes moving higher by 1.21%.

Stock Market Outlook – Advance Decline Numbers

Volume on Friday was lower by 300 million shares to 3.5 billion.  Of those shares traded 72% were moving higher by the close and just 27% were falling. 78% of all stocks were rising by the close. New highs rose from Thursday’s 20 to 36 on Friday. New lows fell back from 38 to 21.

The NASDAQ traded 1.9 billion shares which is slightly below average. 78% of all volume was moving higher while 19% was moving lower. 73% of all stocks listed on the NASDAQ were rising. New highs were rose to 37 while new lows were down from Thursday’s 86 to 36 on Friday.

Low volume on Friday points to this as being a probably bounce before the market moves lower.

Stock Market Outlook – Technical Indicators At The Close

Stock Market Outlook - May 20 2016

Stock Market Outlook – May 20 2016

Stock Market Outlook: Chart Comments:

The S&P closed below the 20 day simple moving average and the 50 day moving average again on Friday. The rally took the SPX up to the 50 day simple moving average (SMA). Once reached, the SPX fell back which is often typical of a bounce from an oversold market rather than the start of new rally.

The closing candlestick is bearish for Monday.

The 100 day is still above the 200 day moving average which is a longer-term buy signal. The S&P is above the 2050 support level again.

Stock Market Outlook: Support and Resistance Levels:

These are the present support and resistance levels. These levels have not changed since January 2015.

2100 is resistance.

2075 is light resistance. Below that is 2050 which is light support and may be come resistance shortly.

There is light support at 2025.

Better support is at 2000.

Weak support is at 1970 while stronger support is at 1956 and technically it is more important than 1970 for the market. 1940 is light support as is 1920. 1900 is more symbolic than anything else.

1870 is support. 1840 continues to be support. The 1820 level is light support. The strongest support level is at 1800.

1775 and 1750 are both critical support for the present bull market. While 1775 is important it is 1750 that is the bottom line.

A break of 1750 would mark a severe correction from the all-time high of 2134.72.  This would be the biggest correction since the plunge in 2011 of a 20% pullback. A pullback to 1750 from the all-time high would be a drop of 384 points for a decline of 18%. A pull-back of that size would definitely stun investors and bring to question whether the bull market which started in 2009 is finished. From 1750 it is an easy slide to 1600 which was near the market top in 2007.

Stock Market Outlook Technical Signals

Momentum: For momentum I use a 10 period when studying market direction. Momentum is slightly negative but trying to climb back to positive.

MACD Histogram: For MACD Histogram, I am using the Fast Points set at 13, Slow Points at 26 and Smoothing at 9. MACD (Moving Averages Convergence / Divergence) issued a sell signal on April 22. The sell signal was weak again on Friday and is continuing in a sideways pattern rather than pushing higher or falling lower.

Ultimate Oscillator: 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. The Ultimate Oscillator is positive and rising.

Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is negative and rising which could indicate stocks are about to move higher in prices.

Slow Stochastic: 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. The Slow Stochastic is signaling up for stocks for Monday.

Fast Stochastic: For the Fast Stochastic I use the K period of 20 and D period of 5. These are not default settings but settings I set for the 1 to 3 month S&P 500 chart when I have it set for daily views. The Fast Stochastic is signaling up for stocks for Monday.

Stock Market Outlook for Tomorrow – Monday May 23 2016

Technically the indicators are 3 positive with two buy signals from the stochastic indicators and 3 negative but with rising negative signals.

The market direction looks more sideways than up or down but these rallies off one day declines tend to evaporate quickly in the past year and a half of trading.

I am expecting the market on Monday will open either weak and then try to rally or strong and then fall back.

Overall the rally on Friday remains suspect in my opinion and while the volume indicators point to the same findings as I have, there is always the possibility that Friday’s rally could last through Monday and then Tuesday would be the down day.

The technical indicators are split for Monday. My personal outlook is for the market to end lower by the close.  I would have to say that Friday’s rally looked suspect.


 

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