Friday saw the SPX drop lower and break through the 21 and 50 day moving average and reach the Lower Bollinger Band. In what was a very bearish session, volume also rose as it was triple witching on Friday with monthly options expiring. the important Moving Average Convergence / Divergence (MACD) technical indicator confirmed Thursday’s down signal both intraday on Friday and at the close on Friday.
The SPX closed on Friday, down 2.13% from its 52 week high. Another 2% to 3% would be likely for the upcoming week which would mark a typical pullback in an ongoing bull market.
Let’s look at Friday’s close to see what the start of the fourth week of June may have in store for investors.
Stock Market Outlook Chart Comments At The Close on Fri Jun 18 2021
Friday saw the index break through the 21 day and 50 day moving average and reach the Lower Bollinger Band. Often this type of a drop results in a bounce attempt and then a move still lower. An eventual move down to the 100 day would not be out of the question for the week.
The drop on Friday left a bearish closing candlestick for Monday. Any bounce on Monday would be another chance to put together a further downside SPY ETF trade or buy some protection to try to profit from what is most likely a drop to the 100 day coming this week.
The Upper Bollinger Band is falling and the Lower Bollinger Band is rising which could setup a new Bollinger Bands Squeeze for the start of the upcoming week. At this stage, a squeeze would be bearish.
The 21 day is turning lower which is bearish. The 50 day is turning sideways, also bearish.
Meanwhile the 100 and 200 day moving averages are climbing. These are bullish signals.
The SPX chart is now more bearish than bullish. The chance of a move lower is much higher than a recovery to a new high. A move to the 100 day moving average would see the index near the lows from the May pullback, roughly 4050 on the SPX.
Stock Market Outlook review of Fri Jun 18 2021
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 Thursday June 17 2021. The down signal was confirmed by a strong negative 5.30 on Friday. A confirmation with that strong a negative signal, rarely works back to positive within a couple of days. Normally we will see more downside before the down signal weakens.
- 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 sharply.
- 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 the start of the week.
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 sharply lower but at a reading level where a bounce, even a small one, could happen at any time.
- 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 lower after rising on Thursday. Usually a drop now in the Rate Of Change means prices may not move strongly up or down. Therefore a strong down day is not expected for Monday but it will be negative.
- 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:
4250 is resistance
4225 is resistance
4200 is resistance
4175 is light support and just below the 50 day moving average
4150 is light support
4100 is light support
4070 is very light support
4050 is light support and is where the 100 day moving average rests
4000 is good support
3900 is support
3850 is support
3800 is support and just below the 200 day moving average
3750 is good support
3700 is light support
3680 is light support
3600 is strong support
Stock Market Outlook for Tomorrow – Mon Jun 21 2021
Friday was setup for a downturn following Thursday’s weakness but comments from St. Louis Fed President Jim Bullard which seemed to contradict the Fed Chair’s comments as to the timing of an interest rate rise, sent stocks sharply lower.
The close was very negative on Friday but if anything, this will mean more sellers will appear this week, certainly at the start of the week. Monday’s should start with some selling and then a bounce attempt should be expected. That bounce though won’t hold at this point. A break of the 50 day will almost certainly mean a move down to the 100 day moving average should be expected early in the week. On any bounce on Monday I will be buying more SPY ETF put options for July 21 expiry at the $410 put strike. I will be selling the $375 put strike to reduce the cost of the $410 put strikes. $375 is below the 200 day moving average and I do not expect this pullback to go that deep. If wrong in my outlook, the $375 put strike will help defray losses from buying the $410 put strike.
For Monday then, I expect a bit of a dip at the open and then a bounce attempt before the day closes lower.
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