On Friday March 25, the S&P climbed higher in the morning reaching 4545 shortly before 11:00 AM. Sellers appeared and pressured the index lower but this time the SPX held above 4500. Selling volume was lighter than prior days and the morning dip quickly found buyers. By 2:00 PM buyers had moved the index back to 4535 but after an hour of sideways action sellers tried again, ahead of the weekend. This time selling was even more muted. By 3:30 the index was hovering around 4515 and with low selling volume. Investors decided to buy into the close ahead of the weekend which is a bullish signal. The index rose to end the day at 4543 just a few points below the morning high. This left the index in a bullish stance heading into the start of the final week of March.
The NASDAQ ended the day with a very small loss of 22 points. The NASDAQ closed at 14169, off the day’s high of 14218 but marking the third trading day of the week with the index above 14,000 but still just below the 200 day moving average. The NASDAQ has been below the 200 day moving average since Jan 18. A couple of closures above 200 should occur this week which will be bullish.
Let’s review the closing technical indicators from Friday to see what to expect for the start of the final week of March. This will be a very busy week of reports and on Friday we get March non-farm payroll numbers.
Stock Market Outlook Chart Comments At The Close on Fri Mar 25 2022
The SPX index rose higher again on Friday and is continuing to pressure the Upper Bollinger Band. The index is clear of all major moving averages. This is bullish.
The Upper Bollinger Band is still moving higher and the Lower Bollinger Band is turning sideways, indicating further upside is expected.
The closing candlestick on Friday is bullish for Monday but is also continuing to signal that stocks in general are overbought and due for a dip this week. Note the candlestick has a long shadow (tail) by the close indicating buyers pushed sellers aside. A bullish but often overbought signal.
The 21 day moving average is moving higher which is bullish. The 200 day moving average is also back at the 4400 level which is bullish. If the index continues to stay above the moving averages, the 50 day moving average will not fall below the 200 day but instead will climb higher. This would be a major up signal if the 50 day were to cross above the 100 day this week. The 100 day moving average has not fallen further but is trending sideways. You can see in the chart that the 100 day was tested throughout the past week, held up and on Friday the index broke clear of it. These are bullish signs.
The SPX still has 4 down signals in place but none of the moving averages are falling as of Friday’s close.
The chart is more bullish again by Friday’s close. The signals indicate the rally has slowed and stocks in general, are overbought. Monday could see dips back but if 4500 holds, which is likely, a higher market should start the week.
Stock Market Outlook review of Friday March 25 2022
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising and positive. The momentum reading on Friday was 110.32. This is the highest reading since April 2020 when the index was climbing out of the pandemic collapse. At present, momentum readings will drop back as they are very high, but they also point to the market still holding strong momentum readings through most of this week.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued an up signal Wed Mar 16 2022. On Friday both the MACD up signal and the histogram have the highest readings also since April 2020. Again they point to more upside this week.
- 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 moving sideways and overbought signaling a dip is likely.
- 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 weak up signal in place and is very overbought. On Thursday it had shown a weak down signal. In other words, the signals are close to neutral with the technical indicator showing heavily overbought. Dips are likely.
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 and signaling overbought but showing room for some further upside.
- 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 back which indicates dips should be expected as prices will not rise as quickly in the broad spectrum of stocks as we saw last week.
- 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:
4600 is strong resistance
4590 is resistance
4575 is resistance
4560 is resistance
4550 is resistance
4525 is resistance
4500 is resistance
4490 is light resistance
4475 is light support
4450 is light support
4400 is support
4370 is light support
4350 is light support.
4300 is good support
Stock Market Outlook for Tomorrow – Mon Mar 28 2022
You can see from the technical indicators that many readings are the highest since April 2020. The rally has recovered the correction losses. It will now take an unknown event to send markets tumbling. A spike in inflation may cause a drop but unlikely a plunge. A nuclear strike by Russia would cause a drop of easily 15% or more and retest the correction lows. That at present though seems unlikely. A chemical attack in Ukraine would see perhaps a 5% correction from Friday’s close. However a move toward a Ukraine-Russia resolution of some sort, would see the index climb perhaps back to 4700 or 4750.
The past week saw the strongest up signals since the April 2020 rebound. Those signals won’t stay this strong. Monday will see some dips but the 4500 level is not expected to break. A flat to higher close is expected for Monday. That means dips are once again opportunities to setup trades.
Potential Market Moving Events
The final week of March has many events that could impact the market. Friday we get the March non-farm payroll and hourly wages report which have often changed the market direction even temporarily. Aside from all the other reports, a number of Fed Presidents are also speaking which probably means a hawkish number of addresses. Each of the Fed speeches could dip the indexes. None of the speeches are expected to be dovish and none are expected to discuss a quarter point rate increase going forward. That means this week we need to take advantage of the speeches to setup trades on dips. Here are the main events for the week that I think could see dips and possibly a few spikes in the markets. Anything that points to a dip in inflation numbers will result in the index rising.
Monday:
Trade in goods report which is not expected to result in any stock market movement.
Tuesday:
For the week a number of reports are due. On Tuesday we get the Case-Shiller National house price index, the FHFA national house price index, Consumer Confidence Index, Jobs Opening and Quits and two Fed Presidents speak. Fed President Harker speaks at 10:45 and Atlanta Fed President Bostic at 6:30 PM. Harker speech may dip stocks but not Bostic.
Wednesday:
On Wednesday we get the ADP employment report, the GDP revision, the Gross Domestic Income, Corporate profits and two more Fed Presidents speak. Richmond Fed Barkin speaks at 9:15 and Kansas City Fed President George speaks at 1:00 PM. Both speeches could dip stocks. Barkin could dip Wednesday’s open allowing for a SPY call trade to be setup. George could dip stocks coming out of the lunch hour.
Thursday:
Thursday is initial jobless claims, continuing jobless claims, nominal personal income and consumer spending, PCE price index, Core PCE price index, Real Consumer Spending and the Chicago PMI. No Fed’s speak on Thursday but these are inflation reports which could dip or rally stocks. All of these are before the open except the Chicago PMI.
Friday:
Friday is the big one – the March nonfarm payroll numbers and unemployment rate and average hourly earnings. This is often a market moving event which can last a week or longer. I will be putting together a SPY ETF trade on Thursday ahead of those numbers and posting it for Members. I will post the outline being considered in Thursday’s morning Investing Strategy Notes before markets open on Thursday.
On Friday at 9:05 Chicago Fed President Evans is speaking before markets open. At 9:45 we get the Market Manufacturing PMI. At 10:00 we get the ISM manufacturing index and construction spending. At no set time in the morning we should get motor vehicle sales which are estimated to reach 14.1 million. This could be a bullish signal but the big one is the March unemployment report. It will overshadow all the other Friday reports.
This promises to be an exciting week for stocks but in general the market is bullish to start and looks bullish heading into Friday’s unemployment report. Monday morning I will be buying SPY calls on any early morning dip.
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