Wed Feb 21 2018 was all about the Fed minutes from the final Fed meeting chaired by former Chair Janet Yellen. As explained in the Market Breadth Indicator outlook, minutes from the latest Federal Reserve policy meeting showed a more hawkish stance and a need to continue to raise interest rates. The Fed was also more “upbeat” that inflation would continue to rise. For most analysts they believe the new Fed Chair Powell will raise interest rates again in March and the outlook is for further interest rate hikes this year and into 2019. There were also some who indicated they believe the stock markets probably topped in January and while none expect a bear market this year or even next, many doubted the indexes could recover the highs from January. All of this doom and gloom added to the selling which sent stocks tumbling lower. By the close the Dow had wiped out a 300 plus point gain and ended with a 166 point loss. The S&P which had been flirting with pushing beyond 2745 fell and closed at the 2701 level. Only the NASDAQ saw small losses, falling just 16 points.
Closing Statistics for Wed Feb 21 2018
S&P 500 Index Close
The S&P index ended down 14.93 to 2701.33
Dow Jones Index Close
The Dow Jones ended down 166.97 to 24,797.78
NASDAQ Index Close
The NASDAQ closed down 16.08 to 7218.23
Stock Market Outlook – Review of Wed Feb 21 2018
Chart Comments At The Close:
The index closed back below the 50 day moving average and left behind at the close, a bearish candlestick for Thursday. This is the third bearish candlestick in a row for the index. So far Friday was the highest recovery point from the correction. The 21 day moving average continues to fall toward the 50 day and the Lower Bollinger Band is still falling toward the 200 day moving average. The 100 and 200 are still climbing but the 50 day is moving sideways. The overall chart is bearish.
Stock Market Outlook review of Wed Feb 21 2018
Stock Market Outlook: Technical Indicators:
Momentum: For momentum I use a 10 period when studying market direction. Momentum is positive and falling.
MACD Histogram: For MACD Histogram, I am using the Fast Points set at 13, Slow Points at 26 and Smoothing at 9. MACD (Moving Averages Convergence / Divergence) issued a sell signal on Jan 31. The sell signal continued to lose strength on Wednesday but is still in effect.
Ultimate Oscillator: 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. The Ultimate Oscillator signal is positive and moving lower. It is ready to turn negative.
Slow Stochastic: 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. The Slow Stochastic has a very weak up signal still in place.
Relative Strength Index: The relative strength index is set for a period of 5 which gives it 5 days of market movement to monitor. It often is the first indicator to show an overbought or oversold signal. The RSI signal is falling back.
Rate of Change: 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. On Wednesday the rate of change is negative and falling which indicates lower prices are expected.
Support Levels To Be Aware Of:
2700 is now support.
2675 is light support.
2650 is light support and 2620 is also light support.
There is good support at the 2550 level from where the market bounced back from the recent correction.
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 as a drop to this level would be 20% and just 5% away from a potential bear market signal.
Stock Market Outlook for Tomorrow – Thu Feb 22 2018
The drop on Wednesday was caused by investor angst over the prospects of interest rates rising faster and quicker than first realized. However a give back of these intraday rallies is technically tough on the indexes. The technical indicators are turning more negative again for Thursday. We could see the market open lower and then stage a rally attempt. That attempt will fail and the markets will then move lower. A negative close is anticipated for Thu Feb 22 2018.
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