Friday was all about the March Jobs numbers which initially sent stocks higher before they worked there way lower. By 2:00 PM the SPX was down to the 2460 level but when the index failed to break lower, investors jumped back in and push the index almost to 2500 before closing at 2488. Despite the loss of 1.5% on the index it was actually a surprisingly strong day for stocks.
Stock Market Outlook Chart Comments At The Close on Fri Apr 3 2020
The SPX chart continues to be bearish and and we can see a 5th sell signal emerged on Friday with both the 50 and 100 day moving averages falling below the 200 day. In a classic bear market pattern we now have the Upper Bollinger Band fallen below the 50, 100 and 200 day moving averages which indicates further weakness should be expected. However, we also have the Lower Bollinger Band turning back up following the March 23 low of 2191. You can see that the Upper and Lower Bollinger Bands should form a Bollinger Bands Squeeze this week which could send stocks either higher or lower. It is uncertain at this stage how the Bollinger Bands Squeeze will turn out later this week.
The index is continuing to fight to hold the 2500 level and on Friday the index reached the 21 day before turning back down. The candlestick at the close is bearish but it also is signaling a potential reversal up, to start the week.
Stock Market Outlook review of Fri Apr 3 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising and it is still above the red line in the technical chart. That line was resistance. We want to see momentum stay above that red line, otherwise there is more downside ahead.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued an up signal on Thursday March 26. The up signal was weaker at the close on Friday but the histogram (candlesticks behind the signal lines) continues to stay positive.
- 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 bounce off the prior resistance line and is trying to climb back up.
- 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 a down signal in place.
- 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 and is right at the prior resistance line.
- 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 rising slightly but staying above the resistance line.
- 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 – Mon Apr 6 2020
This is a short week with Easter holidays coming on Good Friday. That often assists markets in corrections and bears.
The market continues to be driven by news and rumors. Over the weekend there was lots of both with much of it positive for a change. News of the malaria drug hydroxychloroquine starting to be used with unscientific results boosted confidence in the fight against the virus. Indian and Brazil have announced wide spread use of the drug and a controversial report out of France indicated good results combining hydroxychloroquine and azithromycin.
As well other news of new antibodies being tested along with Plasma transfusions that showed some success also has investors trying to decide if the market bottom was put in back March 23. Finally news of at least two vaccines being fast-tracked which may mean a development by late fall, also caught the attention of investors along with the possibility that the number of infected may have started a decline, although it is too early to be certain. On the negative side, infection cases are now well over one million world-wide and news that UK Prime Minister Johnson was hospitalized may dampen enthusiasm on Monday.
Whatever happens, the technical indicators are split but the slight majority are holding positive and indicating there remains a good chance for the start of the week to be positive. I am expecting Monday to be higher. With more and more companies and individuals joining the war against the virus through everything from making ventilators to face masks, shields, gowns and more, there are definite signs that the effort to contain and then defeat the virus is gaining traction. It will though, still take time but for investors looking at many stock beaten to levels that are rivaling the collapse in the credit crisis, there was enough positive news on the weekend to see buying on Monday.
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