Friday saw more selling as shares of GameStop Stock (GME) and others caught in the short selling turmoil, were back rallying on high volumes.
The overall markets saw investors continuing to take profits on a fairly wide scale as the number of stocks falling as a percentage, grew on Friday.
The close on Friday saw the SPX down 73 points for a loss of 1.9% and it was the worst week for the S&P since the last week of October 2020. For the month of January, the index ended at 3714 for a loss on the month of 1.1%.
For the NASDAQ the index lost 2% to end the day down 266 points at 13070. However the index ended January with a gain of 1.4% for the third straight month of gains.
Stock Market Outlook Chart Comments At The Close on Fri Jan 29 2021
Friday saw the S&P collapse below the 50 day moving average and close at it. Almost always a bounce can be expected after a dramatic plunge such as was seen on Friday but rarely does it signal the end to a sell-off.
This left behind a bearish candlestick for Monday to start off February with losses.
The 21 day moving average is turning lower as of Friday along with the Upper Bollinger Band and Lower Bollinger Band.
The 200, 100 and 50 day moving averages are still climbing but we could see the 50 day begin to turn lower this week, if the sell-off continues.
The chart continues to look weak although there are no clear sell signals yet as the October up signal, no longer in the 90 day chart below, is still valid. That could change quickly this week if the index continues lower.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling and negative.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Wed Jan 27 2021. On Friday the down signal was very strong. It is at the point where a bounce could be expected.
- 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 is falling and 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 has a strong down signal in place for a fourth straight day and is nearing oversold readings.
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 entering oversold readings.
- 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 and turned negative indicating lower prices should be expected.
- 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:
3850 is resistance
3800 is resistance
3750 is support
3700 is light support
3600 is strong support
3550 is support
3500 is strong support
3450 is support
3400 is support
3375 is support
3300 is strong support
3275 is support
3200 is support
3150 is support
3050 is support
3000 is strong support
Stock Market Outlook for Tomorrow – Mon Feb 1 2021
The selling was fairly heavy on Friday and may have pushed markets into enough of an oversold condition to see a bounce. Normally though, after a large down Friday, we can expect Monday to open lower and then investors will decide whether to risk capital at this stage of the correction or hold a bit longer to see if this ends up being a 5% or instead a 7% to 10% correction. At Friday’s close the correction is at 4%. Investors could expect at least a 5% correction which we should see on Monday even with a bounce.
A new stimulus measure should it be agreed to, could stall or even end the sell-off if it is announced early this week but for Monday, the technical indicators are all pointing to a continuation of the selling, even with the expected bounce. Stay cautious and raise cash to be ready to scale back into positions if the index slips still further, as expected. A 7% correction would take the index down to 3600 which is strong support. The 3700 level is good support but it was tested several times on Friday and has a good chance of breaking. Major support after 3700 is down at 3600, a full 100 points lower. Interim support levels exist but are weak and may not hold back sellers. For Monday though, a break that low is not expected but instead we should see a lower open, a bounce attempt and then a move below 3700. Any stimulus talk or a change in investor sentiment regarding GME and other short selling targets could put a floor under the market on Monday but seems unlikely as of Friday’s close.