On Wed Dec 21 2022 stock indexes opened higher and rose through most of the day. Stock indexes were deeply oversold which aided stocks in their climb. The S&P rose 56 points to add 1.5% and close at 3878.
The NASDAQ rose 162 points for a 1.5% gain to close at 10,709.
Trading volumes were again lower on Wednesday as more investors are heading off for Christmas holidays. The lower volume assisted the climb in equities. On the S&P, volume was 86% being traded to the upside and 72% of all stocks rose. On the NASDAQ 65% of all volume was being traded to the upside and 62% of all stocks rose.
The VIX Index closed lower again at $20.07 down 6.5% and signaling the lack of concern among investors continued on Wednesday. On Thursday we should see the VIX tumble below $20.
Let’s review the closing technical indicators from the SPX on Wednesday to see what to expect for Thu Dec 22 2022.
Stock Market Outlook Chart Comments At The Close on Wed Dec 21 2022
On Wednesday the S&P closed below all moving averages once again but recovered to the 50 day moving average. While still bearish, the move to the 50 day is bullish short-term.
The closing candlestick is bullish for a continuation of the rally.
The Upper Bollinger Band is turning sideways which is cautionary. Normally we would like to see the Upper Bollinger Band continue to move higher as the index climbs. That is currently not happening. The Lower Bollinger Band is still falling.
All four major moving averages are falling which is bearish.
There are now 4 down signals in place since April 24 and two up signals.
The chart is 60% bearish for Thursday the strongest showing for the bulls in several weeks.
Stock Market Outlook review of Wed Dec 21 2022
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising again but still negative.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal Tuesday Dec 6 2022. On Wednesday the down signal lost strength due to the rally. The histogram also lost 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 rising but still negative. Signals point to the Ultimate Oscillator moving higher on Thursday.
- 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 and also showing oversold readings. We should see this signal gain strength on Thursday.
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 rising, still negative but moving sharply higher.
- 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 rising but still negative.
- 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:
4050 is resistance
4030 is resistance
4025 is light support
4000 is light support
3975 is light support
3965 is light support
3950 is good support
3925 is light support
3900 is good support
3875 is light support
3850 is light support
3830 is light support
3810 is light support
3800 is good support
3775 is good support
3750 is good support
3730 is light support
3725 is light support
3715 is light support
3700 is good support
3685 is light support
Stock Market Outlook for Tomorrow – Thu Dec 22 2022
For Thursday, technical indicators are signaling a higher day should be expected. Any selling should break below 3850. The SPX chart is more bullish than we have seen in a couple of weeks.
Volumes on Wednesday were lower than we saw on Tuesday. On Thursday volumes should be lower again which often assists a move higher.
The VIX Index is also showing no signs of concern that the market could fall considerably lower. The SPX index held the 3850 level which is bullish. The close at 3878 is above light support at 3875 which is also mildly bullish.
On Friday bond markets close at 2:00. Next Monday (Dec 26) markets are closed. All of this should continue to lower volatility. Next week is often the start of the so-called Santa Claus Rally although how big of a rally stocks may have this year is anyone’s guess.
I started buying SPY calls on Wednesday and plan to add more on Thursday.
I am continuing the plan which is watching for deeper dips in large cap stocks that have strong balance sheets. I am taking profits where and when they appear.
Potential Economic and Political Market Moving Events
On Thursday we get the Weekly Initial Unemployment Insurance Claims. Friday we get more inflation data, consumer sentiment and durable goods orders. We could see some swings higher Thursday and Friday if the economic readings come in as expected.
Wednesday:
8:30 Current account deficit was slightly less than expected at -217 billion.
10:00 Consumer confidence index rose sharply to 108.3 far higher than expected. This assisted the rally.
10:00 Existing home sales fell more than expected to 4.09 million. This was considered a signal of declining inflation by some analysts. Others saw it as a sign the economy is heading toward a recession.
Thursday:
8:30 Weekly Initial Unemployment Insurance Claims is expected to be higher at 220,000
8:30 Real GDP is expected to be 2.9% unchanged from the most recent reading
10:00 Index of leading economic indicators is expected to be -0.5%
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