Monday saw stocks fall at the open which was expected but the rally back was not as strong as hoped for.
Late afternoon stocks fell as investors took profits. By the close the indexes were slightly lower.
The SPX ended the day down 15 points at 4008 as the index clings to 4000.
The NASDAQ fell 142 points to close at 11,662.
Let’s review the closing technical indicators from Monday to see whether the rally can restart on Tuesday.
Stock Market Outlook Chart Comments At The Close on Mon May 16 2022
Monday ended with a new down signal.
A bearish candlestick ended the day on Monday but again pointed to a potential second bounce attempt.
Both the Upper Bollinger Band and the Lower Bollinger Band are back falling lower, which is bearish. In the chart you can see that the Lower Bollinger Band is not confirming the index moving higher. Instead, as the index tries to climb, the Lower Bollinger Band is still falling which is quite bearish.
All moving averages are still bearish and there was a new sell signal on Monday as the 100 day moving average fell below the 200 day. That means the 200 day moving average is now leading the market. This is bearish and usually signals more selling to come shortly.
All the major moving averages are falling including the 200 day. The 21 day is still falling rapidly.
The chart is 95% bearish for Monday. There is a good chance the bounce on Tuesday will also fail. If it does, the index will close below 4000.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling and negative.
- 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 lost strength as did the MACD histogram.
- 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 but still 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 has an up signal in place and is still showing some oversold signals. This means another bounce attempt could occur.
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 no longer 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.
- 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 17 2022
The inability of the index to climb and close higher on Monday is bearish. The technical indicators have lost a lot of strength from Friday’s rally. Most are showing that any bounce on Tuesday may either fail or end not as high as expected.
I am still holding SPY ETF calls from Friday’s open but will sell them today and buy SPY put options again.
On Monday the Empire state manufacturing index came in at negative 11.6. Analysts had expected a positive 16.5. This is a good sign for potentially lower inflation down the road but it also fed the theory that the economy is heading toward a recession this year.
For Tuesday, I am expecting another bounce attempt but with a lot of weakness. A higher close could happen but I am not expecting much of a rally higher into the close. On Tuesday we get retails sales. (see below) These are often market moving events.
Potential Market Moving Events
These are the potential market moving events for the third week of May. Tuesday has the most important reports this week as far as market moving events are concerned.
8:30 Retail sales including with and without auto – was 0.8%. A higher percentage would bump stocks, especially retail stocks.
9:15 Industrial Production Index – was 0.9%
9:15 Capacity Utilization – was 78.3%. A higher number will be positive for stocks.
10:00 NAHB home builders index. – Was 77 – a higher number will be positive for stocks.
8:30 Housing Starts – 1.79 million prior
8:30 Building Permits – 1.87 million prior
8:30 Philadelphia Fed Manufacturing Index – was 17.6 – a higher number could be construed as inflationary
8:30 Weekly Initial Unemployment Insurance Claims
10:00 Existing Home Sales – 5.77 million prior. A higher number will show the economy is expanding.
No market moving reports