Monday was set to move higher even before positive news reached the markets of the Moderna vaccine trial results and comments from an interview with Fed Chair Powell boosted stock indexes still higher. The prior week had seen two days where the bears had tried to gain control and shove the markets lower only to find buyers pushing back. On Monday many bears found themselves covering short positions as indexes roared higher.
The S&P was up 90 points to 2953. The Dow Jones climbed 912 points to 24,597 and the NASDAQ soared 220 points to close at 9235.
Stock Market Outlook Chart Comments At The Close on Mon May 18 2020
The SPX chart continues to be bearish with 6 sell signals in the chart and a Bollinger Bands Squeeze that is still underway. There are though more signs for the bulls with one up signal from May 1 with the 21 day moving average, back above the 50 day. Since moving above the 50 day the 21 day has turned sideways and given no further up signals. The candlestick on Monday jumped above the 21, 100 and 200 day moving averages leaving behind another up signal for the bulls. The closing candlestick is also bullish for Tuesday. The Upper Bollinger Band is starting to turn up as the closing candlestick on Monday is pressuring the Upper Bollinger Band higher. This is another up signal for the bulls.
We should see the 21 day resume its trend up and the Lower Bollinger Band should start to fall lower this week which will be two more signals for the bulls.
The Bollinger Bands Squeeze is still underway but signs point to the index as breaking higher rather than lower out of the squeeze.
Stock Market Outlook review of Mon May 18 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising and positive.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a confirmed down signal on Wed May 13 2020. The down signal was almost wiped out on Monday. The day ended with a negative 0.64 which is more neutral than down. We should see the up signal appear tomorrow.
- 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 signal is rising and positive.
- 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 strong up signal in place for Tuesday.
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 sharply and just starting to signal overbought.
- 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 slightly advising that we shouldn’t expect prices to jump a lot higher on Tuesday or Wednesday but the trend is for higher prices.
- 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:
3000 is strong resistance
2950 is resistance
2900 is resistance
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 and most analysts believe this is the low point we will see.
2100 is light support
2000 is good support and marks a drop of 1393 points for a 41% correction. Some analysts believe the index will fall this low before the bear market ends.
Stock Market Outlook for Tomorrow – Tue May 19 2020
While the chart is still bearish, there are growing bullish signals. As well the technical indicators are turning strongly bullish and MACD is ready to issue an up signal on Tuesday. At the same time, the Relative Strength Index (RSI) is just starting to show some overbought signals but we should see more overbought signals before this rally runs out of steam.
After a big rise on Monday, the morning on Tuesday is likely to show some weakness but the trend is up and the close will be higher on Tuesday by the end of the day.
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