On Wednesday a number of reports combined to send stocks lower as investors changed their outlook from worry about the Fed raising rates too high, to a recession that may not be as weak or short as many pundits predict. The retails sales numbers with and without autos was poorer than expected and showed December sales were not as strong as projected. Producer prices also fell lower than expected along with industrial production. The Fed’s Beige Book released at 2:00 PM offered no sign of respite for investors from rising rates as the Fed obviously continues to push for employment to slow and reverse course. A number of Fed officials also spoke on Wednesday and continued the hawkish tone. About the only bright spot was the Home Builders’ Index (NAHB) which showed an improvement which would seem to indicate that housing may have bottomed perhaps in October 2022.
The S&P lost 62 points to end the day at 3930 having closed below the interim 3975, 3965 and 3950 support levels. It closed above the 3925 support level. A bounce to retake 3950 is probable on Thursday but won’t hold.
The NASDAQ fared better falling 138 points to close at 10957, back below 11,000
Let’s review the closing technical indicators from the SPX on Wed Jan 18 to see what to expect for Thu Jan 19.
Stock Market Outlook Chart Comments At The Close on Wed Jan 18 2023
On Wed Jan 18 the S&P fell back from the 200 day moving average which has been a continual problem for the index in this bear market and is a bearish signal. It closed above the 50, 100 and 21 day moving averages which is bullish.
The closing candlestick is bearish for Thursday but also signals that a bounce could happen, especially in the morning but will not hold.
The Upper Bollinger Band is starting to turn lower which is a concern but the Lower Bollinger Band is trending sideways which remains bullish.
The 200 and 100 day moving averages are falling which is bearish but the 21 day is turning back up and the 50 day moved above the 100 day on Friday Jan 13 for a new up signal. This up signal ended the down signal from Dec 30.
At present there are are 5 down signals in place since April 24 and one up signal.
The chart is 75% bearish for Thursday and shows the index is no longer overbought. This is a large jump in bearish signals since yesterday.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling but still 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 Monday Jan 9. The up signal lost strength on Wednesday. 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 falling and nearing negative readings.
- 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 stronger down signal in place. It is still signaling 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 falling sharply and turned negative.
- 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 and positive which often signals bigger moves in the index are coming, whether up or down does not matter. The signal is advising the index will make larger moves. The assumption is to the downside based on Wednesday’s sell-off.
- 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 resistance
4000 is resistance
3975 is resistance
3965 is resistance
3950 is resistance
3925 is light support
3900 is light support
3875 is light support
3850 is good support
3830 is good 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 Jan 19 2023
The technical signals are advising that the rally has run out of steam and momentum is leaving the bulls. A bounce is likely but has little chance of holding. The Rate Of Change technical indicator is rising which is probably signaling the index will see wider swings, likely to the downside. A move down to 3850 which is good support, is likely by next week.
The market still has a lot of bulls and the NASDAQ held up well on Wednesday but with investors nervous, the chance of a rebound that can hold and push above 4000 is unlikely. The market needs to move lower to bring in more buyers and try for another rally. To do that means falling below 3900, probably to 3850 by next week. A bounce on Thursday to 3950 is likely but will not hold.
Potential Economic and Political Market Moving Events
Events are Thursday are not expected to assist the bulls although housing has been a bit of a bright spot lately.
Thursday:
8:30 Weekly Initial Unemployment Insurance Claims are expected to come in at 215,000
8:30 Building permits are expected to be 1.35 million unchanged from November
8:30 Housing starts are expected to be 1.36 million down from 1.43 million in November
8:30 Philadelphia Fed manufacturing index is expected to be -10.0, up from -13.8 prior
3 Fed officials speak: Susan Collins, Lael Brainard and John Williams. All are expected to continuing the hawkish tone.
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