Emotions are continuing to drive stocks lower as investors attention is once again focused on the potential for a recession. Wednesday saw stocks continue Tuesday’s sell-off as higher volumes indicated more selling as investors took profits wherever they could, particularly in stocks that have risen in 2019 and still have profits in them. The number of new highs on Wednesday was the lowest since mid-January as investors, both institutional and retail took profits, fearful that stocks could fall further.
Stock Market Outlook Chart Comments At The Close on Wed Oct 2 2019
The 21 day moving average is no longer climbing. The index on Wednesday reached the 200 day moving average and closed slightly above it. In just two days of selling the index has fallen below the 50, 100 and 200 day moving averages.
The 50 and 100 day moving averages are begin to turn down. Only the 200 day moving average is still climbing.
The Bollinger Bands Squeeze looks like it will not occur as the Upper Bollinger Band is rising and the Lower Bollinger Band is falling, indicating a major move is already underway.
The closing candlestick is bearish for Thursday but the index is very oversold. The two buy signals from September are still in place.
Stock Market Outlook – review of Wed Oct 2 2019
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling and signaling oversold.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued down signal on Fri Sep 27 2019. The down signal was stronger 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 signal is falling and entering oversold 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 sell signal in place and is 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 falling and is also oversold.
- 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 but not giving oversold signals.
- 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:
3000 is resistance
2960 was good support
2950 was light support
2900 is light support
2860 is light support
2840 is support
2800 is strong support
2795 is light support
2745 to 2750 is light support
2725 is light support
2700 is light support
2675 is light support
2650 is support
2625 is light support
2600 is support.
Stock Market Outlook for Tomorrow – Thu Oct 3 2019
The technical indicators on Wednesday by the close are all negative and 4 of the 6 indicators are signaling oversold. That means a bounce is very probable for Thursday. A bounce at or near the open is what investors should expect. From there more selling is probable. An afternoon is also a high likelihood but the close will be negative. Any bounce on Thursday should be treated as highly suspect. That means the chance of a bounce managing to take hold and propel the markets higher to recover the rally is low to none. A move up on Thursday will only be a bounce.
The rally needs a catalyst to re-ignite it. News of a possible trade deal, even a partial one would help, but for now that seems a remote possibility.
Thursday morning before the open, we get the Weekly Initial Unemployment Insurance Claims. If these surprise with weakness, especially ahead of Friday’s September jobs numbers, the index will move lower. The outlook remains negative for stocks heading into the end of the first week of October.
Make sure to review the support and resistance levels to be prepared for where the S&P should bounce and where it will meet resistance.
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