Stock Market Outlook for Mon Jun 8 2020 – Overbought, Dips Likely But Bullish

Overbought But Bullish

Analysts had expected a jump higher in the unemployed numbers from May. None had predicted a large decline in the unemployment rate. However with the economy opening my mid-May the number of unemployed being called back to work created the largest one month gain in history as 2.5 million workers either found or returned to jobs plunging the unemployment rate to 13.3 percent rather than the 20% most had predicted. This was the spark which jumped the markets on Friday. The S&P ended the day up 2.62% at 3193.93 after being as high as 3211 intraday.  The Dow Jones rose 3.15% for a closing at 27,110.98 while the NASDAQ made a new all-time high of 9845.69 on Monday before closing at 9814.09.  Let’s review the technical indicators to see where the S&P may head following an incredible first week of June.


Stock Market Outlook Chart Comments At The Close on Fri Jun 5 2020 

The S&P closed above the Upper Bollinger Band on Friday, a bullish signal and a signal of being overbought.

The closing candlestick on Friday was once more bullish but it also signaling a possible sideways or lower day to start the week on Monday.

The S&P has not been below the 200 day moving average since May 18.

With 3 major up signals in the chart (see below) the 21, 50 and 100 day moving averages are all climbing higher. We should see the 100 day move above the 200 day this week which will be another up signal.

The Lower Bollinger Band is continuing to dip lower and the 50 day moving average is well above the Lower Bollinger Band, another bullish signal. The Upper Bollinger Band is continuing to rise along with the index which is also a bullish signal.

Stock Market Outlook review of Fri Jun 5 2020

Stock Market Outlook: Technical Indicators Review:

Momentum: Momentum is rising and positive.

  • Settings: For momentum I use a 10 period when studying market direction.

MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued an up signal on Tuesday May 19. The up signal was stronger again 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: Despite the rally, the Ultimate Oscillator rose only slightly by the close on Friday which is normally a signal that the advance will slow for a day or two.

  • 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 down signal for Monday despite Friday’s massive rally. It is also showing the index is extremely 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 slightly and overbought.

  • 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 took a big jump on Friday indicating investors should be prepared for price changes (up or down)

  • 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 resistance

3050 is support

3000 is 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 and most analysts believe this is the low point we will see.

2100 is light support

2000 is good support and marks a drop of 1393 points for a 41% correction. Some analysts believe the index will fall this low before the bear market ends.


 Stock Market Outlook for Tomorrow – Mon Jun 8 2020 

For Monday there are some signals that the rally may stall for a day or even two. The opposite side is that with so many investors missing the recovery rally, they will now want back into stocks and will be looking for any dips as a chance to buy cheaper which means dips could be shallow. Therefore, while the technical indicators are pointing to the chance of a weak day for Monday or Tuesday to start the second week of June, the fundamentals advise that dips are opportunities to setup further trades.

With indicators pointing to an overbought stock market, weakness or choppy trading may occur but the majority of indicators are still pointing to a higher day or Monday. The outlook then is for a choppy day with dips likely but still bullish.


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