A much stronger non-farm payrolls number on Friday juiced the markets higher at the open. Then comments from Fed Chair Jerome Powell gave hope to investors that the Fed would be far more careful at raising rates in 2019 as his comments once again turned dovish. These two events combined into an impressive rally. This was the second large rally in 7 trading days. It should be enough to keep stocks elevated for the next several days. Let’s review Friday’s action and see what it tells us to expect for Monday’s markets.
Stock Market Outlook Chart Comments At The Close on Fri Jan 4 2019
The S&P chart remains bearish with 6 sell signals. On Friday the rally pushed the S&P to within a few points of the 21 day moving average.
The 100 day is still slipping lower as it moves away from the 200 day, signaling the correction will continue.
Note how the Upper Bollinger Band is falling lower and now the Lower Bollinger Band is beginning to rise. This could be a new signal to the upside for a few days before either the index enters a Bollinger Bands Squeeze or the S&P moves back lower. The closing candlestick on Friday was bullish. The S&P moved above 2500 on Friday which is a good signal for the bulls, even if it is only a short-term rally.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is positive and rising. This is the first move positive since Dec 10.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Mon Dec 10 2018. An up signal was generated at the close on Friday but it is not yet confirmed.
- 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.
- 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 an up signal for the start of the second week of January.
- 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.
- 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 from being oversold.
- 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 Resistance Levels To Be Aware Of:
2900 was support – this will be strong resistance
2860 was support – this will be resistance
2830 was light support and will be light resistance
2800 is strong resistance
2795 is light resistance
2745 to 2750 is light resistance
2725 is light resistance
2700 is resistance
2675 is light resistance
2650 is light resistance
2620 is light resistance
2600 is strong resistance.
There was good support at the 2550 level which is now resistance.
The 2500 level is resistance.
The S&P has light support at 2480 and better support at 2450.
There is good support at 2425.
Below that there is some support at 2400, 2380, 2350.
2300 has the most support at present but would represent a full correction of 641 points as a drop to this level would be 21% and just 5% away from a full bear market signal ending the bull market from 2009.
Stock Market Outlook for Tomorrow – Mon Jan 7 2019
Friday’s big rally has pushed the S&P back into a rally mode that should last through Monday and Tuesday. There is some selling pressure which should result in dips on Monday, especially in the morning, but the close on Monday will be higher.
The technical indicators have improved and a new up signal from MACD needs to be confirmed. This should happen on Monday.
Stock Market Outlook Archives