Not much needs to be said about Wednesday. The Fed raised rates and disappointed investors with no dovish statement to soften the blow. That lead to intensive selling.
By the close the S&P was down to the Lowest level of the year in the present correction.
Stock Market Outlook Chart Comments At The Close on Wed Dec 19 2018
The S&P chart remains bearish with 5 sell signals. As well the 100 day is preparing to fall below the 200 day which will be a major sell signal and a time to consider further protective strategies.
The market is very oversold but that is not making any difference at present. The closing candlestick on Wednesday was bearish.
The Bollinger Bands continue to fall, pointing to more downside ahead for the S&P.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is negative and falling. It is deeply oversold.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Mon Dec 10 2018. That down signal is very strong on Wednesday’s close.
- 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 falling toward 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 is very oversold with a strong 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 very 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 also falling and 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 support – this will be strong resistance
2860 was support – this will be resistance
2830 was light support and will be light resistance
2800 is strong resistance
2795 is light resistance
2745 to 2750 is light resistance
2725 is light resistance
2700 is resistance
2675 is light resistance
2650 is light resistance
2620 is light resistance
2600 is strong resistance.
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 – Thu Dec 20 2018
There are once again no positive signals from the technical indicators for Thursday though stocks are very oversold.
With the interest rate increase now in the “rear-view” mirror, investors may start to look for some catalyst that could send stocks higher.
With stocks deeply oversold there is the potential for a bounce but overall it will be an opportunity to close positions to lock in profits. Thursday will end lower for the S&P.
Fed Chair Powell did a lot of damage to stocks on Wednesday with his less than dovish stance on interest rates. Since speaking in early October, he has driven the S&P down 15% and wiped out hundreds of billions from equity valuations. It will take time to heal and the first half of 2019 appears as treacherous as the fall has been as the Fed is intent on tightening their balance sheet as quickly as possible and continuing with rate hikes. Exactly what data-driven info the Fed is reading that has created this sense of urgency on their part, is obviously not what the rest of us are reading.
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