Obviously my outlook for Tuesday was definitely on the wrong side of the market. Concerns over what the actual “truce deal” was with China sent investors into a panic on Tuesday especially over the lunch hour when the weakening market was also hit with concerns about the UK Government and the potential for the Brexit deal to collapse. On top of all this was worry that the reason the Fed had changed its tune to a “softer” stance on interest rates was because the economy was showing signs of slowing. All of this was too much for investors who just days before had seen the sharpest rally of 2018. Sellers returned and volumes overwhelming trounced stocks.
This evening news of the arrest of Huawei’s CFO in Canada and probable extradition to the US for potentially violating Iran’s export sanctions has the Chinese government outraged and the futures around midnight EST down 360 points on the Dow and show the S&P opening up around 2665. Futures show the NASDAQ opening back below 7000.
Let’s review the close on Tuesday Dec 4 and see what it can tell investors for Thursday Dec 6.
Stock Market Outlook Chart Comments At The Close on Tuesday Dec 4 2018
The S&P index closed back below the 200 day moving average and 21 day moving average on Tuesday returning the market to a bearish stance.
The 21 day moving average is continuing to rise which is bullish.
The Lower Bollinger Band is starting to move lower again which is bearish.
There are now 4 sell signals on the S&P. The S&P is back to the 2700 level and will open the day on Thursday below. This marks a return to bearishness.
The closing candlestick is bearish for Thursday although without the arrest of Huawei’s CFO, we should have been able to expect a bounce attempt on Thursday following the steep decline on Tuesday.
The S&P chart has returned to bearishness.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is positive and falling.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued an up signal on Wed Nov 28 2018. The up signal was weaker but still fairly strong on Tuesday.
- 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.
- 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 down signal in place for 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 falling.
- 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 Resistance Levels To Be Aware Of:
2900 was good support – this will be strong resistance
2860 was good support – this will be resistance
2830 was light support and will be light resistance
2795 is light resistance
2745 to 2750 are light support
2725 is support
2700 is support
2675 is light support
2650 is light support
2620 is light support
2600 is strong support and held the market up from the lowest pullback in the present correction
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 6 2018
The market has changed from fundamentals to emotions as investors fear the continuation of the tariff trade war following the arrest of Huawei’s CFO. Into this “climate” every bit of negative news from the Fed to fears of a slowing economy to Brexit will weigh on investors. About the only good thing that can be said is the market is oversold and could bounce but the chance it will happen on Thursday or even Friday seems slim looking at the negative switch in the technical indicators. Where once all the technical indicators were positive and rising, they are now weakening and the first sell signal from the Slow Stochastic is being flashed. Weakness is evident once again in all of the technical indicators following Tuesday’s market plunge. Even those still positive are falling.
There is always the chance of a bounce on Thursday as the market is quite oversold but with bearish emotions running deep, the outlook for the market is lower and probably without a chance of a bounce.
Caution is once again warranted as the markets look set to retest the 2650 level.
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