Monday’s drop took out the 4000 level for the S&P. This is an important technical support point and normally investors should expect a bounce attempt to move back above 4000. The technical indicators at the close on Monday show the market could bounce but unless investors change their inflation and the Fed outlook, the index is setup to fall still further.
The S&P lost 132 points to close at 3991.24, a new correction low. The NASDAQ closed down 521 points as the tech collapse continued on Monday. It ended the day at 11,623. It is now down 25.7% for 2022 and 28.3% below the all-time high set on Nov 22 of 16,212.
Let’s review Monday’s closing technical indicators to see how likely a bounce is for Tue May 10 2022.
Stock Market Outlook Chart Comments At The Close on Mon May 9 2022
On Monday the day ended with a bearish candlestick that advised a bounce is possible but more selling should be expected.
The Upper Bollinger Band is continuing to fall deeper but the Upper Bollinger Band, while moving lower is slowing its descent which often signals a potential bounce.
All moving averages are still bearish and there are still three sell signals in the index. All the major moving averages are falling including the 200 day. The 21 day is falling rapidly and the 100 day is likely to move below the 200 day and 50 day this week unless a rally can start. At present that seems unlikely. A bounce is more likely than a rally.
The chart is 100% bearish for Tuesday. All the bounces over the past three weeks have failed. That continues to build selling pressure and pushes stocks still lower. Stocks though are becoming more attractive with each downturn and at one point a rally will recover many stocks, especially those stocks that have solid balance sheets and earnings. Those will shoot higher quickly in any rally.
Stock Market Outlook review of Mon May 9 2022
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling and negative. It is now deeply oversold and bearish.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal Friday April 8. On Monday the down signal strengthened. The MACD histogram also gained strength to the downside.
- 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 and negative.
- 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 still has a down signal in place and is moving into 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 and into oversold readings.
- 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:
4400 is resistance
4370 is light support
4350 is light resistance
4300 is light resistance
4290 is light resistance
4270 is light resistance
4250 is resistance
4225 is light resistance
4200 is light resistance
4150 is light resistance
4100 is light support
4050 is light support
4025 is light support
4000 is good support
3975 is light support and is a decline of 17.5%
3900 is light support and is a decline of 19%
3850 is good support and is a decline of 20%
3600 is good support at is a decline of 25%
Stock Market Outlook for Tomorrow – Tue May 10 2022
For Tuesday investors should expect a bounce to try to retake the 4000 level and move higher. At this point in the sell-off the bounce won’t hold but it will allow time to close positions to lock in any profits and for myself, I will be buying more SPY put options on any bounce. I am using May 20 expiry at the $400 put strike.
I added into the support and resistance chart above some of the more important valuations below 4000. You can see that a full 25% decline would place the SPX at 3600. While its anyone’s guess if the selling will reach that level, the NASDAQ is already down 28% from its high and there are many tech stocks that have been crushed in the sell-off which are sitting at attractive prices. The lower the tech stocks fall, the more attractive these become but many are already down well beyond 28%.
On Monday the 1 year consumer outlook was slightly lower than expected at 6.3% but the 3 year was higher than expected at 3.9%.
There is not much on Tuesday to move the markets but remember, the “big” day this week is Wednesday when investors learn the CPI numbers. (see chart below).
Potential Market Moving Events
Tuesday:
11:00 Real Household Debt which is unlikely to alert market direction
Wednesday:
This is the “big” day for markets. Higher than expected percentages will push markets lower.
8:30 Consumer Price Index which if higher than 1.2% will move the market lower.
8:30 Core CPI which is forecast to be 0.4%.
8:30 CPI year-over-year which needs to come in below 7.5% to alert the market direction lower
8:30 Core CPI year-over-year which was 6.4% previously. A lower percentage is needed
2:00 Federal Budget which won’t affect the markets this time around.
Thursday:
8:30 Initial jobless claims and continuing jobless claims
8:30 Producer price index which is expected to be half a percent.
Friday:
10:00 Consumer Sentiment Index (UofMich)
10:00 5 Year inflation expectations (UofMich)
Stock Market Outlook Archives
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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
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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
Morning Investing Strategy Notes for Tue Apr 16 2024
Stock Market Outlook for Tue Apr 16 2024 – Deeply Oversold