Monday was all about hope that the coronavirus cases were starting to peak. Many investors felt there was “light at the end of the tunnel” even if that tunnel might still be fairly long. With many stocks still down well over 30% from their highs, investors bought on Monday giving the S&P a gain of 175 points to close at 2663. It was the best one day gain since Tuesday March 24.
Stock Market Outlook Chart Comments At The Close on Mon Apr 6 2020
The SPX chart continues to be bearish with 5 sell signals in the chart.
This evening you can clearly see the Bollinger Bands Squeeze that is rapidly building. I thought this might affect the markets next week but it may happen by Wednesday or Thursday. With the index staying above 2500, we could see a push still higher out of the Bollinger Bands Squeeze or should something negative occur in the coronavirus “war” we could see a sharp drop back.
The index is continuing to hold above 2500 and for the first time on Monday, the index closed above the 21 day moving average. The closing candlestick is bullish but is also often followed by large dips the following day.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising and it is still above the red line in the technical chart. That line was resistance. We want to see momentum stay above that red line, otherwise there is more downside ahead.
- 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 March 26. The up signal was stronger on Monday.
- 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 rising off the prior resistance line and is climbing.
- 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.
- 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 is above the prior resistance line.
- 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 also above the resistance line.
- 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:
2700 is strong resistance and was a drop of 20.4%.
2675 is light resistant
2650 is resistance
2625 is light resistance
2600 is resistance
2550 is light resistance
2500 was good support and marked a correction of 26.3%
2344 is the next level of support and marks a 30.9% correction.
2100 is light support
2000 is good support and marks a drop of 1393 points for a 41% correction. More analysts are jumping onto this level as where the correction is heading.
Stock Market Outlook for Tomorrow – Tue Apr 7 2020
For Tuesday the technical indicators have turned strongly positive. There are no negative technical indicators. Only the chart of the SPX continues to signal warning signs as it retains 5 sell signals along with a potential Bollinger Bands Squeeze.
For Tuesday the rally should continue but not as strong and we will see deeper dips than we saw on Monday. For now though the outlook is still higher.