Last week saw the second worst week of the year to date. Friday saw further investor jitters as more changes at the White House kept investors guessing on when the new economic “agenda” might, if ever, get center stage. The departure of Steve Bannon seemed to lift the market off the lows. Thursday saw the biggest percentage decline in 3 months. Some technical damage was done and on Friday the S&P almost reached the 100 day moving average.
Economically oil gained 3 percent on the back of news of still further cuts in the number of US oil rigs for a second time in three weeks. Overall though data still indicates US crude output is still rising and as summer draws to a close, gasoline demand usually declines so the outlook for oil remains bearish.
S&P Index Close
The S&P index ended down 4.46 to 24255.55 but well off its low of 2420.69.
Dow Jones Index Close
The Dow Jones ended down 76.22 for a decline of 0.35% on the day and only 33 points off the day’s low.
NASDAQ Index Close
The NASDAQ closed down 5.39 points to 6,216.53 which was far better than the 123 points drop on Thursday.
Stock Market Outlook
Stock Market Outlook review of Aug 18 2017
Chart Comments At The Close:
The S&P broke through 2425 which was expected in Thursday’s report. You can see in the chart that the S&P is well below the 50 day moving average and almost touched the 100 day on Friday before buyers finally showed up.
The closing candlestick on Friday is often seen as a bullish reversal increasing the chance of a bounce on Monday. At this stage though a lot of technical damage has been done, so with a lower low on Friday investors need to focus now on the 2405 level. That’s the low from the drop June 29 which lasted until July 6 when the S&P reached an intraday low of 2407.70
If the S&P breaks 2405 and bounces off 2400, the chance the market will fall below 2400 is greatly increased.
The Lower Bollinger Band continues to drop ending the recent Bollinger Bands Squeeze. The Upper Bollinger Band is turning up which usually indicates there is still some upward pressure but if it turned lower near the start of the fourth week of August, then it is signaling the market will head lower.
Stock Market Outlook: Technical Indicators:
Momentum: For momentum I use a 10 period when studying market direction. Momentum is negative and now at the weakest levels of this year.
MACD Histogram: For MACD Histogram, I am using the Fast Points set at 13, Slow Points at 26 and Smoothing at 9. MACD (Moving Averages Convergence / Divergence) issued a sell signal on Aug 3. The sell signal gained more strength on Friday and the MACD histogram is showing selling pressure has reached levels last seen in March of this year.
Ultimate Oscillator: 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. The Ultimate Oscillator is negative and down at the levels from the August 10 sell-off.
Slow Stochastic: 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. The Slow Stochastic has a strong sell signal in place and is nearing oversold readings but still has room to fall.
Relative Strength Index: The relative strength index is set for a period of 5 which gives it 5 days of market movement to monitor. It often is the first indicator to show an overbought or oversold signal. The RSI signal is negative and fell slightly on Friday but is not at “bounce” levels yet.
Rate of Change: 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. The rate of change signal fell from positive straight through to extremely negative. Friday’s signal shows the market is oversold and it is at bounce readings.
Support Levels To Be Aware Of:
The market had developed light support at 2450 and good support at 2425. There is also light support at 2400, 2380, 2350 and 2300.
Normally we should see the market try to hold the 2425 on Monday.
Stock Market Outlook for Tomorrow – Monday Aug 21 2017
For Monday there are only negative technical signals for the market. However despite all the sell signals, there are a few signals that point to the market trying to bounce. It closed on Friday at 2425 which regular readers will know from my articles, is a major support level for the S&P and the present rally. With the weakness we have seen over the past two days there is a good likelihood the expected bounce may not hold and the market may fall the remaining 20 or 25 points to reach either 2405 or 2400.
A move to 2405 and then a second bounce attempt would still be bullish but a move to 2400 would be critical.
Monday should see a better bounce attempt than we saw on Friday and a higher close but the bounce will he highly suspect for failure and investors should be aware of the strong chance of the market slipping still lower on Tuesday or Wednesday even if Monday closes higher.
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