Friday continued with more carnage although not as bad as mid-week. Friday though saw a lot of technical damage done although investors were picking at a few stock names. However disappointing earnings from Amazon and Alphabet led the markets lower and there was nothing that could stop sellers on Friday. The S&P lost 1.7%, the NASDAQ 2% and the Dow 1.19%. Amazon Stock (AMZN) lost a huge 139 points for a 7.8% drop. Alphabet (GOOGL) fared much better, losing $19 points and closing down 1.8%.
Stock Market Outlook Chart Comments At The Close on Fri Oct 26 2018
The index closed well below the 200 day moving average again on Friday and what was equally important, the market got a second major sell signal with the 21 day falling below the 100 day. The 50 day is turning lower while the 21 day could fall further to below the 200 day. Meanwhile all the major moving averages are falling. The Lower Bollinger Band is collapsing and the S&P is following it lower.
On Friday the closing candlestick is bearish but it also often points to the potential for a bounce before another move lower commences.
Stock Market Outlook: Technical Indicators Review:
All indicators continue to signal lower as of Wednesday’s close.
Momentum: Momentum is negative and falling.
- 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. The signal was strong on Friday but is still at levels usually associated with a bounce commencing.
- 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 continuing to move sideways which would confirm what we are seeing with the very oversold market.
- 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 down signal in place for Monday and is deeply oversold. Normally a bounce will follow such readings.
- 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 fell lower and is oversold.
- 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 fell on Friday and is oversold.
- 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 is resistance
2745 to 2750 are light resistance
2725 is light resistance
2700 was important support and may be retaken again if there is a bounce.
2675 is light support and was broken on Friday for the second time.
2650 is light support which looks set to be tested again Monday.
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 of 641 points as a drop to this level would be 21% and just 5% away from a bear market signal ending the bull market from 2009.
Stock Market Outlook for Tomorrow – Mon Oct 29 2018
The market is very oversold and the downturn has not seen much in the way of a follow through for a rally attempt.
Monday does have the potential for a bounce, which you can see from the oversold readings and signals in the index. However there is no signal that advises that any bounce won’t fail.
Monday then has the potential for a bounce, but overall the market is still headed lower. Stay cautious and protected. Make a list of stocks that you might like to see in your portfolio but at even lower prices. Keep that list ready for when the market finally shows a bottom is in place. For Monday that is not the case.
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