Wednesday continued to see low volume and an overbought market. The index struggled at the 4800 level but refused to break below 4780. It was a second day of trading within a 20 point spread on the index. The close saw a flurry of buying which sent the SPX above 4800 but the closing 10 minutes saw sell programs dump shares which sent the index below 4800 to close at 4793. It was a slight gain of 6 points on the day but overall the index has not actually moved since Monday’s close. This is bullish for the rally to move higher.
Meanwhile the NASDAQ lost 15 points but also on low volume. New 52 week lows were almost 4 to 1 which is a tough backdrop to see the index move to its all-time highs.
Let’s review the technical indicators at the close of trading on Wednesday to see what is in-store for Thursday.
Stock Market Outlook Chart Comments At The Close on Wed Dec 29 2021
The closing candlestick on Wednesday is neutral for Thursday. Normally this closing candlestick signals a flat day ahead but as this is the Santa Claus Rally week and stocks are refusing to pullback, we could still see another attempt to close above 4800 on Thursday.
The Upper Bollinger Band is continuing to move higher which is also bullish
Meanwhile the 21 day moving average bounced off the 50 day yesterday and is climbing above the 50 day. This is bullish.
The Lower Bollinger Band is still below the 100 day moving average and falling, which is bullish.
Meanwhile the 50, 100 and 200 day moving averages are still climbing, all of which is bullish.
For Thu Dec 30 2021 the chart is bullish except for the candlestick which points to a potential flat day ahead for Thursday.
Stock Market Outlook review of Wed Dec 29 2021
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising and positive.
- 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 Dec 23. On Wednesday the up signal gained more strength signaling that the index should climb shortly.
- 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 overbought.
- 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 weak up signal in place and is extremely overbought.
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 moving sideways or unchanged and is overbought.
- 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.
- 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:
4800 is resistance
4725 is resistance
4700 is resistance
4670 is support
4655 is light support.
4600 is good support
4550 is light support
4525 is light support
4500 is support
Stock Market Outlook for Tomorrow – Thu Dec 30 2021
The S&P remains overbought heading into Thu Dec 30 2021. With just one day left this week, the Santa Claus Rally is starting to run out of days to advance further. Historically the final trading day of the year has been negative almost 90% of the time over the past couple of decades. This is natural as it is the end of the year and many investors who have not repositioned or adjusted portfolios, will be doing so on Friday this week. That leaves just Thursday and then Monday and possibly Tuesday next week for the index to stage a further extension of Monday’s rally. Tuesday is when historically the Santa Claus rally period ends.
For Wednesday technical indicators are still showing the index as overbought which makes a further advance difficult. However with most technical indicators continuing to support a further rise to above 4800 for the S&P, investors should look for dips on Thursday but a close above 4800.
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