Markets were on the defensive right from the open on Monday. Investors returned to worrying about the Fed and rising interest rates following November’s non-farm payrolls report. Many analysts changed their interest rate outlook from half a percent to three-quarter percent for December’s interest rate by the Fed. As well, next week on Tuesday the latest core CPI figures are released. Following Friday’s stronger employment numbers, many analysts now believe the inflation numbers will surprise which could send stocks lower. All of this weighed on investors who spent the day selling positions.
The S&P closed down 72 points for a 1.79% loss. The close was 3998, back below 4000.
The NASDAQ lost 221 points to close at 11,239 for a 1.93% loss.
Let’s review the technical indicators at the close on Mon Dec 5 2022 to see what to expect for Tue Dec 6 2022.
Stock Market Outlook Chart Comments At The Close on Mon Dec 5 2022
On Monday the S&P closed back below the 200 day moving average which is bearish. The candlestick is also bearish for Tuesday.
The closing candlestick is still above the 100, 50 and 21 day moving average which is still bullish.
The Upper Bollinger Band crossed above the 200 day on Wednesday November 16 which is a bullish signal. On Monday though the Upper Bollinger Band is turning down and the Lower Bollinger Band is turning up. This could signal the start of a Bollinger Bands Squeeze which, at present, looks like it will send stocks lower later this week. This is bearish.
A second up signal was generated on Wednesday Nov 30, with the 21 day moving above the 100 day. This ended the down signal from Oct 14 which you can see has been removed from the chart.
The first up signal was Friday Nov 11 when the 21 day moving average moved above the 50 day.
The 50 and 100 day moving averages are turning higher. The 200 day is trending sideways. All three are bullish signals.
There are now 4 down signals in place since April 24 and two up signals.
The chart though is 70% bearish for Tuesday.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling and positive.
- 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 Oct 16. On Monday the up signal is almost gone. The histogram is ready to turn negative. If Tuesday is lower, MACD will issue a new down signal.
- 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.
- 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 still overbought.
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.
- 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:
4150 is resistance
4120 is resistance
4100 is resistance
4090 is resistance
4070 is resistance
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
Stock Market Outlook for Tomorrow – Tue Dec 6 2022
For Tuesday the technical indicators have slipped back to bearish. There are no signals pointing to the index as bouncing back and moving higher, as of Monday’s close. Instead all the technical indicators are signaling lower for the market on Tuesday. The S&P chart has turned back to a bearish stance thanks to the SPX closing below the 200 day moving average.
For Tuesday stocks are set to try to stage a bounce and a push to retake 4000 is an easy assumption to make. However the technical indicators are showing weakness is building and the markets will close lower on Tuesday.
Potential Economic and Political Market Moving Events
This week the biggest events are on Friday with consumer sentiment and 5 year inflation reports. Monday is relatively uneventful which should help the bulls.
On Monday you can see below two economic reports came in higher than expected, spooking investors that interest rates will continue to rise higher and longer than projected.
9:45 S&P Services PMI 46.2%
10:00 ISM services index was 56.5% higher than the expected 53.7%. This indicates a recession could be averted but it also signals a great chance of interest rates continuing to rise.
10:00 Factory orders were 1% which is stronger than expected and another reason analysts believe the Fed will continue raising rates.
8:30 Trade Deficit is expected to be -$80 billion. This shouldn’t affect stocks.
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