On Friday July 10, stocks turned positive after an early morning dip failed to come close to Thursday’s morning dip to 3120. Instead on Friday the morning drop stopped at just above 3135. The afternoon saw a steady rally on the back of further data on the Covid19 treatment remdesivir that showed a 62% reduction in mortality. The market has been swinging back and forth on Covid-19 news both good and bad. The close at Friday’s high of 3185 may have set up the index to attempt once more to push to 3200. Let’s look at Friday’s technical readings to see what they can tell us about Monday’s market.
Stock Market Outlook Chart Comments At The Close on Fri Jul 10 2020
The index closed above the 21 day moving average again on Friday and just below the Upper Bollinger Band. The closing candlestick is bullish but it is also a typical candlestick advising of a potential dip on Monday. Any dip though should be short.
Meanwhile the 21 day moving average continued to decline on Friday and the Bollinger Bands Squeeze is tighter to start the week. The signals have been mixed as to which way the index will move out of the Bollinger Bands Squeeze. Much of last week the index looked like it would fall lower out of the squeeze whereas on Friday the close pressured the Upper Bollinger Band which could mean the squeeze will end with the index moving higher.
There are now 6 up signals and no down signals in the chart.
The 50 day moving average is climbing still further, which is readily seen in the chart. The 100 day is also climbing further above the 200 day.
The index is back to the standard form of the 21, 50, 100 and 200 day format which is typical of a bull market. The market still has to retake the 3200 level and push higher to confirm whether this is a rally to a new high or just another rally in a sideways market stuck in a trading range.
Stock Market Outlook review of July 10 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is moving sideways.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued an up signal on Wednesday July 8. That up signal was finally confirmed on Friday by the close.
- 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 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 in place and is very overbought.
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.
- 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:
3200 is resistance
3150 is support
3050 is support
3000 is support
2975 is light support
2950 is light support
2900 is light support
2860 is light support
2840 is light support
2800 is good support
2725 is light support
2700 is light support and marked a drop of 20.4%.
2675 is light resistant
2650 is light support
2625 is light support
2600 is support
2550 is light support
2500 was good support and marked a correction of 26.3%
2344 is the next level of support and marks a 30.9% correction.
2191 was the market low on March 23
2100 is light support
2000 is good support and marks a drop of 1393 points for a 41% correction. Some analysts still believe the index will fall this low in the second half of 2020.
Stock Market Outlook for Tomorrow – Mon Jul 13 2020
The up signal being confirmed by MACD on Friday is a good indication of what the other technical indicators in general are also signaling. All the indicators have changed back to up for the index.
The index continues to be whipsawed by reports on the spread of COVID-19. Rising cases concern investors who sell positions on worries about a second shutdown. On the other hand, positive news of treatments such as the remdesivir news on Friday is all investors need to forget their worries and push the index still higher.
On Monday we could see some weakness in the morning, which is common following a strong showing on Friday. I would expect the market to open higher, then dip back especially on news of another rise in Covid-19 cases in Florida this weekend. However dips on Monday are opportunities to setup more trades as the end of the day should see a higher close as the SPX will challenge 3200 on Monday.
Remember that short-term it is hard to judge the swings, up or down, for the SPX daily as Covid-19 news, both good and bad, are setting the intraday trends, but what is more important is the underlying trend is very much intact – the bulls remain in charge. That means taking advantage of weakness and drops in stocks, to setup more trades remains the trade to make, while we move deeper into July.
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