On Wednesday stocks staged a strong rally to start the day but news of the first reported case of the latest Covid-19 variant, omicron sent investors fleeing once again. This time investors staged a massive sell-off and pushed the S&P from the 21 day moving average to below the 50 day moving average. The S&P did try to bounce off 4600 and at one point looked like it might be able to retake it, but sellers were unrelenting and as the market fell lower, more sell programs obviously kicked in and volumes increased.
The S&P ended the day at 4513, down 54 points. But while 54 points was not as bad as Tuesday’s drop, the drop was actually from a high of 4652.94 which meant the decline was actually 140 points.
The NASDAQ lost 283 points which was worse than Tuesday’s plunge. It closed at 15254. The NASDAQ closed at the 50 day moving average and may try to test the 100 day moving average which is at 15000.
Let’s review the technical indicators from Wednesday to see what to expect for Thursday.
Stock Market Outlook Chart Comments At The Close on Wed Dec 1 2021
The 21 day moving average is falling back and the market is below the 50 day moving average and within easy striking distance of falling to the 100 day. Normally we should expect a bounce here, especially because the index is very oversold, but there is probably almost as strong a chance for the SPX to fall to the 100 day before a rally can be ignited.
The candlestick is very bearish and is signaling overbought but no bounce yet.
The other remaining moving averages, namely the 50, 100 and 200 day are still climbing. This is bullish.
The Bollinger Bands are widening as the Bollinger Bands Squeeze is ending. At present this is bearish.
Stock Market Outlook review of Wed Dec 1 2021
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling, negative and at oversold readings.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Wed Nov 17 2021 . On Wednesday the down signal gain more strength.
- 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 is falling and oversold.
- 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 strong down signal for Thursday 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 is falling and is also 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 is falling further.
- 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:
4700 is resistance
4655 is resistance
4600 is good support
4550 is light support
4525 is light support
4500 is support
4490 is support
4475 is support
4450 is support
4400 is support
4370 is light support
4350 is light support
4300 is light support
Stock Market Outlook for Tomorrow – Thu Dec 2 2021
The technical indicators are signaling the market is very oversold but the closing candlestick on Wednesday is advising to be cautious of any bounce. There is a strong possibility we will see a bounce and then another move lower either on Thursday or on Friday. The chance the S&P will reach the 100 day is high.
The 4525 and 4550 levels are light support and we could see the index jump in the early morning to retake those support levels. If however the index stalls out or fails to reach 4600 and selling increases again, I will be buying more SPY Put Options as I think the index will tumble back before this latest sell-off ends.
I am still expecting December to be positive and I am still expecting a rally to start either next week or by the middle of the month to take the market higher into the end of December.
If however there are a rapid rise in the number of omicron cases and/or we find that cases are not in fact mild, we could see the sell-off worsen.
Remember, take profits and close positions to limit risk to capital. Reduce margin use and raise cash levels for when the outlook clears and points back to up. Begin now to make a list of those big cap companies that have been hit hard already, such as PayPal Stock (PYPL), Walt Disney Stock (DIS), VISA Stock (V) and many more. These will be the stocks to jump into when the selling ends.
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