Stock Market Outlook for Nov 16 2016 – Overbought But Bias Up

Stock Market Outlook Overbought Bias UpStocks continued to advance by the close of trading on Tuesday. The advance has widen with some of the stocks most hammered since the election, being picked up by investors hunting for stocks that have not yet risen in the advance. Normally when investors are no longer buying the leaders of the rally but seeking to push up stocks that have not yet enjoyed the rally, we are nearing a turning point in the rally.

Crude oil moved higher on more talk out of OPEC. The dollar pulled back as investors began to weigh the possibilities of just how much of Trump’s platform can or may actually be implemented. The drop in the dollar pushed up metals including gold which has been through a three-day slump.

S&P Index Close

The S&P index gained 16.19 points for a 0.75% rise to close at 2,180.39.

Dow Jones Index

The Dow Jones moved higher setting another new high, closing up 54.37 to 18,923.06.

NASDAQ Index Close

The NASDAQ cjoined today’s rally with the biggest gain among the major indexes at 1.10%. It added 57.23 points to close at 5,275.62.

Stock Market Outlook – Technical Indicators At The Close

Stock Market Outlook: Chart Comments:

After moving primarily sideways for 3 days, the S&P turned higher and closed at the high of the day. Almost always when an index closes at the high, the market will either open lower or open and then move lower on the following day at the outset. That does not though mean the market will close lower. The 2180 level is important for the market and the close was fairly uneventful as far as selling was concerned. The 20 day movie average moved back above the 100 day moving average today, which is a buy signal. It now needs to move above the 50 day moving average.

The market is nearing the highs from August and early September. A break above those highs would be particularly bullish but seems unlikely at this point in the rally.

S&P to Nov 15 2016

S&P to Nov 15 2016

Stock Market Outlook: Technical Indicators

Momentum: For momentum I use a 10 period when studying market direction. Momentum is now at its highest level since July 11. Whether it has peaked or has further strength is unknown but we should have some idea within a day or two.

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 buy signal on Nov 9. The buy signal remains strong and is rising.

Fast Stochastic: For the Fast Stochastic I use the K period of 20 and D period of 5. These are not default settings but settings I use for the 1 to 3 month S&P 500 chart when I have it set for daily views. The Fast Stochastic is still signaling up and shows the market as extremely overbought.

Relative Strength Index (RSI) : For the Relative Strength Index (RSI)  I use a period of 5 which is a week of activity and is often quite accurate. The RSI is still pointing to the market as extremely overbought which is often followed by a pullback.

S&P technical chart for Nov 15 2016

S&P technical indicators from Nov 15 2016

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 still showing the market as overbought.

Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is still positive and is continuing to climb higher, suggesting there are further price increases coming for stocks.

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 had a down signal in place yesterday but today that signal has changed back to up. It is extremely overbought.

SPX Technical Indicators from Nov 15 2016

SPX Technical Indicators from Nov 15 2016

 Stock Market Outlook for Tomorrow – Nov 16 2016

The market continues to defy the extreme overbought signals from all the technical indicators. Of the 7 technical indicators all are positive or signaling up, but all are also overbought. The rally was strong again today, particular after the lunch hour as investors stepped in to pick up stocks that have been beaten down, such as utilities and many tech names. This is broadening what was a very narrow rally.

This will change the outlook from overbought with a down bias to overbought with an up bias. However at any time the market may turn lower due to the overbought condition of the market. Rallies such as this one tend to run on empty for a few days before they turn back down. Being prepared for a pullback is always worthwhile. However, at present any pullback will result in investors snapping up stocks that have run up and pullback in some weakness. Therefore pullbacks may be short.

Wednesday should see weakness and a dip in the morning. It could be right at the open which the type of closing candlestick the market saw today, often signals. However a lot of investors are still not in this rally. Therefore any morning dip could be short. The rally is definitely losing steam but momentum shows that there is still pent up demand for stocks, particularly as so much capital is fleeing the collapsing bond market. The outlook is up on Wednesday but be prepared for an overbought market pullback at any time.



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