A number of factors contributed to Wednesday’s big decline but the growing pandemic and in particular distressing comments from New York Governor Cuomo on the continuing COVID-19 infection crisis in New York unnerved a lot of investors who sold the market lower as the Governor was speaking at his daily news conference. Even commentators on a number of networks were unnerved even mentioning the possibility of a global depression over the coronavirus pandemic. This sent the index lower but volumes were not as high as in the prior sell-off which should assist in the market trying to bounce on Thursday.
Stock Market Outlook Chart Comments At The Close on Wed Apr 1 2020
The SPX chart continues to be bearish and presents what looks like a classic bear market rally from last week. We will find out shortly, if the index slips back and breaks below 2500 and then fails to recover back above 2500. That will be the signal to prepare for more downside action in April.
There are now 4 sell signals on the market which are in the chart below in pink. All 4 signals continue to hold strength. Another down signal is building as the 50 day is falling toward the 200 day. If if falls below the 200 day, this will be a major sell signal because the 200 day will be leading all the moving averages. That becomes a classic bear market signal which means the bear market will last longer than a few more weeks. You can see the convergence of the 3 moving averages in the chart below. This is quite bearish.
All the moving averages are plunging but the 21 day is starting to show signs of trying to turn sideways while the Lower Bollinger Band is continuing to turn sideways. The Upper Bollinger Band is falling lower and on Wednesday it turned sharply lower. Normally a move like this means the Upper Bollinger Band will break below the 3000 level signaling a move lower in the SPX. The Candlestick on Wednesday failed to even reach the 21 day moving average. We should see the 21 day start to fall lower again unless the index can move higher and push above it. That seems quite unlikely at present.
Wednesday’s closing candlestick is signaling a bounce attempt for Thursday but a lower close is still anticipated.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is sideways and it is still above the red line in the technical chart. That line was resistance. We want to see momentum stay above that red line, otherwise there is more downside ahead.
- 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 weaker at the close on Wednesday but that is understandable considering the heavy selling.
- 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 back falling but it is still above what was resistance. More selling on Thursday though, will see it break.
- 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 an up signal in place. The up signal though is ready to turn into a down signal.
- 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 and is sitting at the resistance level. A move below it will signal another move down for markets.
- 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 also falling but still above resistance.
- 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:
2700 is strong resistance and was a drop of 20.4%.
2675 is light resistant
2650 is resistance
2625 is light resistance
2600 is resistance
2550 is light resistance
2500 was good support and marked a correction of 26.3%
2344 is the next level of support and marks a 30.9% correction.
2100 is light support
2000 is good support and marks a drop of 1393 points for a 41% correction. More analysts are jumping onto this level as where the correction is heading.
Stock Market Outlook for Tomorrow – Apr 2 2020
Technically there is a lot of damage done so far by the bear market. After the close on Wednesday the technical indicators are showing a lot of stress and the 50, 100 and 200 day moving averages are all converged and appear ready to move lower which will be a strong negative signal.
For Thursday we should see a bounce attempt and then a move lower and negative close.
On Thursday before the open we get the Weekly Initial Unemployment Insurance Claims which are expected to be staggering. If these are worse than expected, we may not see any bounce attempt.
On Friday the market gets the March unemployment numbers which will be horrific. Against that backdrop it is hard to imagine the market can recover at present. It will need more time before a recovery can be expected.