On Monday Dec 19, stocks attempted a small bounce early morning but sellers returned by 10:00 AM and any chance of a rally ended. By late afternoon sellers had pushed the index down to the important 3800 level. As we have seen so often in the past year, buyers jumped into the final hour and pushed stocks back to close off the low at 3817. The loss though was almost another 1%.
On the NASDAQ losses were higher at 1.49% with a drop of 159 points to end the day at 10546.
Investor focus remains on a potential recession and talk of a “lot lower” prices for equities continued to spook investors on Monday. However the VIX Index closed at 22.42, down 20 cents or almost 1% on the day signaling a lack of concern among investors.
Let’s review the closing technical indicators from the SPX on Monday to see what to expect for Tue Dec 20 2022.
Stock Market Outlook Chart Comments At The Close on Mon Dec 19 2022
On Monday the S&P closed below all moving averages once again including further below the 50 day. It broke below the Lower Bollinger Band. This is bearish and also a signal of a market that is becoming very oversold.
The closing candlestick is bearish but with a long shadow (tail) signaling there is a good chance the SPX may try to bounce on Tuesday before selling again.
The Upper Bollinger Band is rising while the Lower Bollinger Band is falling. This signals a major swing is underway which at present is obviously lower.
All four major moving averages are falling which is bearish.
There are now 4 down signals in place since April 24 and two up signals.
The chart is 85% bearish for Tuesday.
Stock Market Outlook review of Mon Dec 19 2022
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising but negative.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal Tuesday Dec 6 2022. On Monday the down signal strengthened further. The histogram also gained strength.
- 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, negative and into oversold signals.
- 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 also showing oversold readings.
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, negative and signaling 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 and negative.
- 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:
4050 is resistance
4030 is resistance
4025 is light support
4000 is light support
3975 is light support
3965 is light support
3950 is good support
3925 is light support
3900 is good support
3875 is light support
3850 is light support
3830 is light support
3810 is light support
3800 is good support
3775 is good support
3750 is good support
3730 is light support
3725 is light support
3715 is light support
3700 is good support
3685 is light support
Stock Market Outlook for Tomorrow – Tue Dec 20 2022
For Tuesday, stocks have another chance for a bounce with more oversold readings from most of the technical indicators. As well the SPX chart also is signaling a potential bounce. However at present it will be just a bounce and a chance to take some profits before the market heads lower.
Volumes on Monday were average as selling continues to draw in more investors despite the VIX Index showing no signs of concern. There are no signs of a panic. For Tuesday any bounce won’t hold but it could slow the selling and allow the index a chance to try to hold 3800 or 3775.
On Friday bond markets close at 2:00. Next Monday (Dec 26) markets are close. All of this may help lower volatility. Next week is often the start of the so-called Santa Claus Rally although how big of a rally stocks may have this year is anyone’s guess.
On Monday I attended a Christmas Party and did not place many trades as a result. On Tuesday I am back trading throughout the day.
I am watching for deeper dips in large cap stocks that have strong balance sheets. I am taking profits where and when they appear.
Potential Economic and Political Market Moving Events
On Wednesday we get the latest consumer confidence reading. On Thursday we get the Weekly Initial Unemployment Insurance Claims. Friday we get more inflation data, consumer sentiment and durable goods orders. We could see some swings this week based on economic reports from Wednesday to Friday but by Friday volumes will be low.
Monday:
10:00 NAHB home builders’ index came in at 31 which was below estimates of 34
Tuesday:
8:30 Building permits are expected to be lower at 1.48 million
8:30 Housing starts are also expected to be lower at 1.40 million
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