Wednesday’s Fed minutes from December caught investors and analysts by surprise as the Fed turned more aggressive than expected. Fed minutes showed a speeding up of pulling liquidity from the markets and raising interest rates possibly as early as March. Investors were expected the Fed to raise rates but the speed of the reduction in quantitative easing stunned most and that started the selling on Wednesday after the release of the December Fed minutes at 2:00 PM.
Selling was broad-based an took down all three indexes. The S&P fell 93 points to end the day at major support at 4700. The NASDAQ collapsed 522 points to end the day at 15,100.
The question now is whether this is a one day event or the start of a nasty downturn. Let’s review the closing technical indicator readings from Wednesday to see what to expect for Thursday.
Stock Market Outlook Chart Comments At The Close on Wed Jan 5 2022
The closing candlestick on Wednesday is bearish but with its close below the 21 day moving average, it also points to a potential bounce in the morning on Thursday before more selling.
The Upper Bollinger Band is turning lower which is bearish. The Lower Bollinger Band has turned back up and moved above the 100 day moving average. This is now bearish.
Meanwhile the 21 day moving average is climbing above the 50 day which is bullish.
The 50, 100 and 200 day moving averages are still climbing, all of which is bullish.
For Thu Jan 6 2022 the index is more bearish than bullish.
Stock Market Outlook review of Wed Jan 5 2022
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling sharply 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 lost most of its strength but is still positive for the bulls.
- 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 oversold.
- 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 and is still 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 and nearing oversold readings.
- 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 support
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 Jan 6 2022
The selling on Wednesday turned all the technical indicators more bearish. Even the MACD up signal was slashed, although it is still bullish.
Many of the technical indicators are nearing oversold readings but there is still room to fall further before they are very oversold. That means a bounce should be anticipated for Thursday especially in the morning but it won’t hold and the index will close lower on Thursday. It may also close lower on Friday, although Friday will depend to a large extent on the December unemployment report which is released at 8:30 AM on Friday.
For Thursday, expect a morning bounce and then more selling and a lower close.
Stock Market Outlook Archives
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