Friday saw stocks attempt a decent bounce from a very oversold condition.
The bounce though ended the day well off their highs although still quite positive. But as you will see below, there are indications that Friday’s rally may be a one day event.
Stock Market Outlook Chart Comments At The Close on Fri Oct 12 2018
The bounce on Friday was poor but it did leave the index above the 200 day moving average.
The problem though is the index closed off the day’s high and left bearish candlestick for Monday.
None of the major moving averages are rising. All are falling on Friday. The 21 day moving average is ready to fall below the 50 day which is a strong down signal for the index.
Stock Market Outlook: Technical Indicators Review:
All indicators are strongly bearish for Monday morning.
Momentum: Momentum is oversold and tried to rise.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Wednesday Sep 26. While it is oversold, the signal is very negative.
- 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 negative and 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 still now has a strong down signal in place and is oversold.
- 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 rose on Friday from being extremely oversold but it is still signaling further weakness.
- 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 deeply oversold and remains negative indicating lower prices are ahead.
- 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 Resistance Levels To Be Aware Of:
2900 was good support – this will be strong resistance
2860 was good support – this will be resistance
2830 was light support and will be light resistance
2795 was light support and will now be resistance
2745 to 2750 is light support that could easily be recovered
2725 is light support.
2700 is important support.
2675 is light support.
2650 is light support
2620 is light support
2600 is strong support.
There is good support at the 2550 level from where the market bounced back from the recent correction low on Feb 9.
The S&P has light support at 2480. It also has light support at 2450 and good support at 2425. Below that there is some support at 2400, 2380, 2350. 2300 has the most support at present but would represent a full correction as a drop to this level would be 20% and just 5% away from a potential bear market signal.
Stock Market Outlook for Tomorrow – Mon Oct 15 2018
Despite Friday’s bounce, the technical indicators are strongly negative for Monday. We could see another bounce attempt but it will fail and the S&P will end the day lower.
The best the bulls can hope for at present is that the index struggles around the 200 day level and does not end the day too far beneath it. Aside to that only the oversold signals are going to assist the bulls presently.
Monday looks choppy, poor and lower.
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