Friday’s outlook was fairly easy to spot as the majority of stocks from the rally were overbought and the market movement on Thursday indicated the index could not hold above the 2900 level. The SPX ended Friday down 2.8% to 2830, but still most stocks from the rally are not cheap and another step lower should be anticipated. Let’s look at Friday’s closing technical indicators.
Stock Market Outlook Chart Comments At The Close on Friday May 1 2020
The SPX chart continues to be bearish with 6 sell signals in the chart. On Friday the index fell back below the 100 day moving average. However the 21 day moving average finally pushed above the 50 day on Friday which is an up signal. This won’t stop a descent but it will slow the move lower.
The 200 day moving average is still leading the market, which is typical in a bear market. It is followed closely by the 100 day. The 50 day is falling quickly.
The closing candlestick on Friday is bearish for Monday.
The Upper Bollinger Band is turning back down while the Lower Bollinger Band is turning up. We could once again be on the verge of another Bollinger Bands Squeeze this week.
Stock Market Outlook review of May 1 2020
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 an up signal on Thursday March 26. The up signal was a lot weaker on Friday and another if there are another couple of weak days, we could see a down signal.
- 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 falling and negative.
- 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.
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 falling.
- 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 signaling that prices are about to change which we may find with lower prices on Monday.
- 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:
2900 is resistance
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 May 4 2020
For Monday the signals are all pointing lower for the index aside from an up signal from the 21 day moving above the 50 day moving average. We will see the index fall below 2800 on Monday, try to recover it and then close back below it. The 21 day moving average climbing though holds some hope for the bulls that selling on Monday and perhaps Tuesday could see a bounce attempt mid-week.
For the start of the week though, stocks that have rallied are still overbought and overvalued. That means more investors will be trying to get out of those stocks that have rallied strongly since the March lows to lock in their profits. The outlook for Monday is for a choppy day which will end lower.
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