Monday’s opening was impressive as stocks jumped on positive Covid-19 vaccine news. The SPX pushed to 3235 by late morning but struggled through the lunch hour and early afternoon to push any higher. Then “bad news” on further Covid-19 rollbacks in California changed investor sentiment and stocks began to fall. The final two hours of trading saw a fairly steady decline until stock indexes closed near the lows of the day. The S&P ended at 3155. The NASDAQ fell from a morning high of 10,824 to close at 10,390. One stock that took center stage was Tesla which fell from a morning high of 1795 to close at 1497 for an incredible plunge. Much of the sell-off in the afternoon could probably be attributed to this stock dragging down the NASDAQ. Other factors include investor nervousness ahead of the start of the next quarterly earnings which begin on Tuesday morning with the release of bank earnings from 4 major banks.
Stock Market Outlook Chart Comments At The Close on Mon Jul 13 2020
The index closed above the 21 day moving average again on Monday but below the Upper Bollinger Band. The closing candlestick is bearish for Tuesday.
The 21 day on Monday started to turn back up but the Bollinger Bands Squeeze is tighter with the Upper Bollinger Band falling to the 3200 valuation and the Lower Bollinger Band at the 3000 support level. This squeeze has not given many signals as to which way the market will move out of the squeeze. Cases can be made for both a move lower and a move higher. We should know though, later this week.
There are now 6 up signals and no down signals in the chart.
The 50 day moving average is climbing still further, which is readily seen in the chart. The 100 day is also climbing further above the 200 day.
The index is back to the standard form of the 21, 50, 100 and 200 day format which is typical of a bull market. The market still has to retake the 3200 level and push higher to confirm whether this is a rally to a new high or just another rally in a sideways market stuck in a trading range.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising despite the late afternoon sell-off.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued an up signal on Wednesday July 8. That up signal was weaker 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 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 very 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 rising which indicates a change in prices is coming, either up or down.
- 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:
3200 is resistance
3150 is support
3050 is support
3000 is support
2975 is light support
2950 is light support
2900 is light support
2860 is light support
2840 is light support
2800 is good support
2725 is light support
2700 is light support and marked a drop of 20.4%.
2675 is light resistant
2650 is light support
2625 is light support
2600 is support
2550 is light support
2500 was good support and marked a correction of 26.3%
2344 is the next level of support and marks a 30.9% correction.
2191 was the market low on March 23
2100 is light support
2000 is good support and marks a drop of 1393 points for a 41% correction. Some analysts still believe the index will fall this low in the second half of 2020.
Stock Market Outlook for Tomorrow – Tue Jul 14 2020
The loss of the rally on Monday will take time to work out. Tuesday we will probably see the index open lower, attempt a bounce and then fall lower again. Rallies on Tuesday will quickly find sellers so I am not expecting any rallies on Tuesday to hold up.
The chance of a lower day may hinge on bank earnings. If banks beat estimates before the bell, we could see the rally stabilize. If they miss earnings, the market will fall lower.
MACD lost a lot of the up signal from Friday’s confirmation. That is never a great sign this early in the up signal. As well most of the other indicators have turned down and the Rate Of Change is higher which indicates prices are expected to make a bigger move. That could mean a dip on Tuesday may have lower prices than expected.
Overall the drop was bearish on Monday but we have seen this type of action before and often the market recovers. This time though, with the index sitting near rally highs, we could see more downside on Tuesday and I am expecting a negative close.