The rate announcement on Wednesday initially saw stocks stage a strong bounce but as the news conference continued, hawkish comments from Fed Chair Powell were perceived by investors as indications that rate hikes would continue through 2022 and early 2023. Investors and analysts turned bearish as they believe the odds of the Fed pushing the economy into a recession, grew after Wednesday’s rate hike. Many analysts are questioning if the Fed is acting to quickly now and not giving the economy time to work through the prior rate hikes. Yet the Fed appears determined to raise rates which now are at their highest level since 2007 before the credit crisis bear market. With so many dire predictions from analysts on Thursday being released, investors dumped stocks again which saw the S&P fall from 3907 at 2:46 to a close at 3789. This late afternoon plunge saw a decline of 118 points.
The NASDAQ also fell losing 204 points to end the day at 11,220.
On the S&P 374 stocks hit 52 week lows while on the NASDAQ 638 stocks closed at 52 week lows. For the S&P this is the highest number of new lows since July 14. For the NASDAQ this is the highest number of new lows since June 16.
Let’s review the closing technical indicators from Wednesday’s close to see what to expect for Thursday.
Stock Market Outlook Chart Comments At The Close on Wed Sep 21 2022
At the close of trading the S&P closing candlestick is very bearish for Thursday and indicates the day will end lower.
The 21 day moving average continued its descent.
The Bollinger Bands Squeeze is probably not going to occur as the Upper Bollinger Band is starting to turn h higher while the Lower Bollinger Band is falling. This signals lower prices ahead for the index.
All the moving averages are turning lower which is bearish.
The 200 day continues to decline. The 100 day moving average is falling and may cross below the 50 day shortly.
There are now 4 down signals in place since April and no up signals.
The chart is 100% bearish for Thursday.
Stock Market Outlook review of Wed Sep 21 2022
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling sharply and negative.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Monday Aug 22. On Wednesday the down signal gained strength. The histogram also gained strength. Both signals are gaining strength to the downside.
- 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 back negative.
- 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 once again 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 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 at its lowest reading since the June sell-off and trying to rise. Often this signals further selling lies ahead.
- 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:
4000 is light resistance
3975 is light resistance and is a decline of 17.5%
3950 is light resistance
3925 is light resistance
3900 is light resistance
3875 is light support
3850 is light resistance
3825 is light support
3810 is good support
3800 is light support
3775 is light support
3750 is light support
3730 is light support
3700 is good support
3675 is light support
3650 is light support
3625 is light support
3600 is good support and is a decline of 25%
Stock Market Outlook for Tomorrow – Thu Sep 22 2022
For Thursday the technical indicators are all bearish. Normally we could expect some kind of a bounce attempt when so many signals are strongly bearish, but momentum is with the bears. That means the market will move lower before it will attempt any kind of meaningful bounce. For now every bounce is suspect and I will be using them to buy SPY Put options to continue to profit as the SPX moves lower. The original outlook was for the SPX to reach 3750 but with Wednesday’s selling, the index has a better chance of reaching 3725 or 3700 before staging some form of a bounce attempt.
In the section on Support and Resistance, I have added in the next 200 points in the SPX to show the next support levels.
For Thursday expect a sharp bounce attempt early morning to try to get back above 3900 but it cannot hold. It will be used by nervous investors who will sell out of positions. Any bounce will be followed by more selling into another negative close for both the SPX and NASDAQ indexes. Until the Fed slows or pauses the interest rate hikes, the market is unable to rally with any conviction. The chance the index will revisit the lows of June of around the 3630 level are very high for October. Considering that 3600 is just 200 points lower, I would rate the likelihood of the index falling that low at 80% or more. From there the market may try to bounce again.
Potential Market Moving Events
The biggest market moving event for the week was on Wednesday with the Fed’s rate hike and his news conference which led to the market sell-off. The Fed is not supporting the market as it continues to fall back. The Fed appears ready to “put up with” declining asset prices in their desire to get inflation lower. They were criticized as not being hawkish earlier in the face of rising inflation. Now they are trying to show a very hawkish stance. In doing so they are risking billions in losses in stock valuations which will impact retirement and investment accounts of tens of millions of people.
Wednesday:
2:00 Fed Reserve statement on interest rates. Rate moved to 3.00 to 3.25%. The goal would appear to be 4.25% to 4.5%.
Thursday:
8:30 Weekly Initial Unemployment Insurance Claims
8:30 Current account deficit
10:00 Leading economic indicators
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Stock Market Outlook for Wed Apr 17 2024 – Another Bounce Attempt
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