Friday action was very bearish and has set up the index for a potential drop lower as investors continue to worry about an escalation of tariffs in the trade war with China. That lead to Friday ending the worst week for stocks in 2019.
Stock Market Outlook Chart Comments At The Close on Fri Aug 2 2019
The SPX chart is bearish. On Friday the SPX fell below the 50 day moving average almost reaching the 100 day moving average before bounce back to close right at the 50 day.
The closing candlestick is very bearish for Monday. However although quite bearish, this candlestick often also signals a rebound may be coming. If you look at the June 3 candlestick in the chart below you can see a very similar candlestick.
The index ended the day below the Lower Bollinger Band and well below the 21 day moving average.
The Bollinger Bands Squeeze is already ending as you can see the Lower Bollinger Band is falling and the Upper Bollinger Band is moving higher.
Meanwhile all the major moving averages are still climbing and the 100 day is almost ready to break above 2900 which will add support to the SPX.
Stock Market Outlook review of Fri Aug 2 2019
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is negative and falling although on Friday the signal was almost unchanged from Thursday.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Thursday July 18. The down signal was stronger on Friday.
- 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 negative and falling.
- 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 signal has a down signal in place for Monday.
- 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 now signaling oversold. If it falls much lower, we should expect a bounce.
- 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 falling indicating lower prices are ahead for the index.
- 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:
3000 is resistance
2960 is light support
2900 is light support
2860 is better support
2830 is light support
2800 is strong support
2795 is light support
2745 to 2750 is light support
2725 is light support
2700 is light support
2675 is light support
2650 is support
2625 is light support
2600 is support.
Stock Market Outlook for Tomorrow – Mon Aug 5 2019
Investors remain focused on the trade war with China and the chance of further tariffs taking place at the start of September. An escalation of the trade war is negative for stocks.
Futures very early Monday morning are strongly negative to start the day.
However often signals strongly negative to start can lead to a very oversold market and a chance for a bounce.
Monday will end negative but a potential bounce could happen at any time as the market moves further into oversold signals.
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