Wed Jan 6 2021 saw the markets soar higher defying analysts who believed a Democrat win out of Georgia would send stocks lower. Instead investors focused on the likelihood of more stimulus being provided under a Democrat controlled Senate. The strong rally was cut short in the afternoon by the riot in Washington but the S&P still ended the day up 21 points at 3748, after making another new historic high of 3783 earlier in the day.
Stock Market Outlook Chart Comments At The Close on Wed Jan 6 2021
On Wednesday the index closed just below the Upper Bollinger Band although in the morning, it broke through that barrier. This left behind a bullish candlestick for Thursday.
The Bollinger Bands Squeeze continues to be in play and has become one of the longer Bollinger Bands Squeezes in several years. There are some signs as of the close on Wednesday that the squeeze will see the index move higher as the squeeze ends. The major moving averages are still rising. The up signal from Oct 21 is still in play. Today’s action negates Monday’s drop for the start of the year.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising and positive.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a a down signal on Dec 10. The down signal was weaker on Wednesday.
- 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.
- 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.
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.
- 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:
3800 is resistance
3750 is resistance
3700 is light support
3600 is strong support
3550 is support
3500 is strong support
3450 is support
3400 is support
3375 is support
3300 is strong support
3275 is support
3200 is support
3150 is support
3050 is support
3000 is strong support
Stock Market Outlook for Tomorrow – Thu Jan 7 2021
For Thursday, the technical indicators are mixed with 3 signals to the downside but the remaining signals pointing higher. The rally on Wednesday was cut short by political events but the overall outlook at present is unchanged. The belief that a Democrat administration will push through more stimulus is the catalyst to keep stocks moving higher on Thursday. This may be a short-term move higher if a Democrat administration moves quickly to raise tax levels once there is a decline in Covid infections but for now the market is focused on fresh stimulus. Any dips on Thursday are opportunities to set up more trades.