Monday saw markets open lower and sell-off in high volume to new correction lows but just as the SPX looked set to break below 4200, buying returned. By the end of the day all the losses had been recovered and all three indexes closed positive on the day. The S&P closed just above the 200 day moving average.
Friday’s closing technical indicators had pointed to the potential for a large bounce for Monday. While I had indicated there would be some selling in the morning before the bounce, I did not expect the selling would pummel the markets and set new 52 week lows that reached bear market numbers with the S&P at lunch hour well above 1000 new lows and the NASDAQ above 1950 new lows. By the close the number of new lows was still quite high with 792 new lows on the SPX and 1755 new 52 week lows on the NASDAQ. The rally though was swift, recovered all the losses and may mark a turning point in the sell-off.
There are still many factors ahead that could spark a return to more selling including an invasion of Ukraine, plus the FOMC announcements due out on Wednesday. For now though Tuesday looks like it will see some selling but with a potential for a flat to slightly lower or slightly higher close.
Let’s take a look at Monday’s trading action and close, to see what we should expect for Tuesday.
Stock Market Outlook Chart Comments At The Close on Mon Jan 24 2022
The closing candlestick on Monday is bullish but the long shadow advises investors should expect some selling and a drop back below 4400 which presently is the 200 day moving average on the SPX. However the day should end flat to higher.
The Upper Bollinger Band is rising which is a bullish signal. The Lower Bollinger Band is falling, which at present is bearish and the candlestick ending the day outside the Lower Bollinger Band often signals more selling to watch for.
The 21 day and 50 day moving averages are falling which is also bearish and the 21 day looks set to fall below the 50 day which would be a sell signal.
The 100 day is falling which is bearish. Only the 200 day moving average is rising which is still bullish.
For Tuesday the chart is very bearish and the index is sitting right at the 200 day moving average. Despite the bearishness, Monday’s big recovery bounce should assist when there is some selling on Tuesday.
Stock Market Outlook review of Mon Jan 24 2022
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising and is negative. It is still signaling oversold and a bounce higher
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Thursday Jan 6. On Monday the down signal gained more strength and with a reading of minus 34.21 there is still a good chance for a further bounce on Tuesday as the market remains very oversold. The MACD histogram is at a point where we often can expect a large bounce.
- 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 rising and just leaving oversold.
- 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 and is signaling extremely 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 rising and very 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 at a level which we can label oversold, where normally we would see a bounce.
- 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:
4800 is resistance
4725 is resistance
4700 is support
4670 is support
4655 is light support.
4600 is good support
4550 is light support
4525 is light support
4500 is support
4490 is light support
4475 is light support
4450 is support
4400 is good support and the 200 day moving average
4370 is light support
4350 is light support
4300 is light support
Stock Market Outlook for Tomorrow – Tue Jan 25 2022
For Tuesday the indexes will open flat to lower. The SPX will fall below 4400 and could reach 4360 or 4355 in a choppy trading session, and the close could be flat or slightly higher or lower. I don’t think we will see the 4240 level revisited on Tuesday.
Remember FOMC on Wednesday could be a market mover and an invasion of Ukraine could spark selling.
Stock Market Outlook Archives
Stock Market Outlook for Fri Apr 26 2024 – Higher and Positive Close
Morning Investing Strategy Notes for Thu Apr 25 2024
Stock Market Outlook for Thu Apr 25 2024 – Weakness and Lower
Morning Investing Strategy Notes for Wed Apr 24 2024
Stock Market Outlook for Wed Apr 24 2024 – Some Weakness But Higher Close
Morning Investing Strategy Notes for Tue Apr 23 2024
Stock Market Outlook for Tue Apr 23 2024 – Bounce But Lower
Morning Investing Strategy Notes for Mon Apr 22 2024
Stock Market Outlook for Mon Apr 22 2024 – No Change – Deeply Oversold Bounce Possible
Morning Investing Strategy Notes for Fri Apr 19 2024
Stock Market Outlook for Fri Apr 19 2024 – Deeply Oversold – Bounce Likely – Higher Close
Morning Investing Strategy Notes for Thu Apr 18 2024
Stock Market Outlook for Thu Apr 18 2024 – Deeply Oversold – Bounce Attempt Expected
Morning Investing Strategy Notes for Wed Apr 17 2024
Stock Market Outlook for Wed Apr 17 2024 – Another Bounce Attempt
