The second trading day of 2023 saw a choppy day with the SPX early morning falling to 3815 which was followed by a rally above 3870. The FOMC minutes sunk stocks to the 3830 support level but two attempts to break lower failed and the S&P closed back above the 3850 support level. The FOMC minutes were not what the bulls were looking for but they contained the selling. Normally a market that continues to refuse to fall, will eventually move higher. The bears in this market have been unable to break through strong support at 3800 since November 10. On Wednesday the SPX issued another down signal with the 21 day breaking below the 50 day. This leaves the SPX without any up signals from the moving averages. Yet stocks continue to defy the sell signals and indeed on Wednesday with the SPX closing at 3853 the Santa Claus Rally managed to repeat itself with a gain of 70 points from a low of 3783 on Dec 28. This is a gain of 1.8% which is above the average Santa Claus Rally gain of 1.5%. While Wednesday is considered the official end of the Santa Claus Rally period, many investors include the next two days. The Santa Claus Rally advises investors that 2023 should end higher than it started.
The S&P closed higher by 28 points to end the day at 2853. The NASDAQ rose 71 points to end the day at 10,458. While gains were modest it was the inability of sellers to break through buyers that remains impressive and that is keeping stocks positioned for a chance to move higher.
On Wednesday volume rose again with the SPX trading 4.5 billion shares and the NASDAQ reaching 5.2 billion. This marks a return to normal daily trading volume.
Let’s review the closing technical indicators from the SPX on Wed Jan 4 2023 to see what to expect for Thu Jan 5 2023.
Stock Market Outlook Chart Comments At The Close on Tue Jan 3 2023
On Wed Jan 4 the S&P closed below all moving averages for the 11th trading day but still managed to stay above the Lower Bollinger Band. This is still bearish.
The closing candlestick is bearish for Thursday but once again the long shadows in the closing candlestick advises investors to watch for a potential bounce.
The Upper Bollinger Band is turning lower which is bearish. The Lower Bollinger Band is turning higher which is also bearish and could be preparing for a potential Bollinger Bands Squeeze. There are some signs that the Squeeze may end up seeing stocks actually move higher rather than lower. In particular the inability of the bears to push the index lower for the past eleven trading days is a bullish sign.
The 200, 21 and 100 day moving averages are falling. The 50 day is trending sideways. This is all bearish.
The 21 day moving average fell below the 100 day moving average on Friday and today it fell below the 50 day. Both are bearish signals and they wipe out the last two remaining up signals from the moving averages.
At present there are are 6 down signals in place since April 24 and now, no up signals.
The chart though is upgraded to 70% bearish for Thursday from 85% bearish, as the closing candlesticks are pointing to a potential bounce building.
Stock Market Outlook review of Wed Jan 4 2023
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising and has turned 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 Wed Jan 4 the down signal lost more strength. The histogram also lost strength. This down signal is now greatly weakened.
- 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 and positive.
- 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 moving above oversold.
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 and turned positive.
- 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 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 resistance
4000 is resistance
3975 is resistance
3965 is resistance
3950 is resistance
3925 is resistance
3900 is resistance
3875 is resistance
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 5 2023
For Thursday the 3830 level in the SPX has changed from light support to good support. There are now three strong support levels currently to be aware of. They are 3850, 3830 and 3800. All three have been repeatedly tested and held sellers back. Buyers are using these three levels to setup trades which is a bullish signal.
As well, all the technical indicators are moving toward bullish levels. The MACD down signal is almost gone. On the bearish side, the new down signal from the 21 day moving average falling below the 50 day on Wednesday is a serious warning and wipes out all the remaining up signals. This means we could see a bounce on Thursday ahead of Friday’s non-farm payroll numbers from December. If those numbers are stronger than expected, the bounce could end quickly. If the numbers show growing weakness in the labor markets, this will be a positive for stocks and they should shoot higher.
For Thursday investors must not ignore the new down signal today but short-term, the index has held up well to repeated attempts to break through 3800. A close still higher on Thursday is a possibility ahead of the December non-farm payroll numbers due out Friday.
Potential Economic and Political Market Moving Events
Selling following the disappointing hawkish FOMC minutes was readily contained. That is bullish although investors may rethink their outlook tomorrow or Friday.
The next major event is the December non-farm payroll numbers due out Friday morning at 8:30. The jobs numbers are often the largest single market moving event on a regular basis. I will be putting together a trade on Thursday to try to profit from Friday’s jobs report.
Wednesday:
10:00 ISM manufacturing index came in at 46.2 which was in-line with expectations but still shows strength in the economy which the Fed is trying to break down.
10:00 Job openings came in at 10.5 million unchanged from the prior reading. Again this shows strength in the economy and not what the Fed obviously wants to see.
2:00 FOMC minutes were more hawkish than the bulls wanted.
Thursday:
8:15 ADP employment report is estimated to be 153,000
8:30 Weekly Initial Unemployment Insurance Claims are estimated to be 223,000 which shows continued strength in the economy.
8:30 Trade deficit is expected to be -$63.1 billion, down from the prior reading of -$78.2 billion
9:45 Services PMI is expected to be 44.4, unchanged from the prior reading.
Friday:
8:30 December non-farm payroll numbers are expected to be 200,000 which is stronger than the prior month.
8:30 Unemployment rate is expected to stay at 3.7%. A lower percentage will send stocks lower. A higher percentage should help to rally stocks.
Stock Market Outlook Archives
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