Monday’s impressive rally shows that buyers are still interested in picking up stocks when they fall even if they are not at firesale prices. The dip on Monday, despite what the media presented, took the index just back to 2900 which is not “all that low” when you look at where the index has come from this year.
True support is down around 2850 to 2860 so stopping at 2900 on Monday was impressive on its own. The recovery rally back to 2932 also shows the index is trying to build strength at the 2930 valuation which has been tested almost daily since April 23.
Stock Market Outlook Chart Comments At The Close on Mon May 6 2019
On Monday the S&P slipped below the 21 day moving average but closed back above it. The closing candlestick is bearish for Tuesday but often it is also a signal for a continuation of a bounce before there is more selling.
On Monday you can see in the chart below the growing Bollinger Bands Squeeze . The chance that this squeeze will see stocks move lower is probably 60% at present.
All the major moving averages are moving ahead with the 50 day and 100 day both moving away from the 200 day. The 100 day is now above the 2800 level.
Stock Market Outlook review of Mon May 6 2019
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is positive and falling.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Wednesday May 1. On Monday the down signal was stronger.
- 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 positive but rising.
- 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 weak down signal in place which is almost neutral.
- 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 falling indicating lower prices lie ahead.
- 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 Resistance Levels To Be Aware Of:
2950 is resistance
2900 is light support
2860 is light support
2830 is light support
2800 is strong support
2795 is light support
2745 to 2750 is light support
2725 is light support
2700 is light support
2675 is light support
2650 is support
2625 is light support
2600 is support.
There was good support at the 2550 level which is back to being support.
The 2500 level is support.
The S&P has light support at 2480 and better support at 2450.
There is good support at 2425.
Below that there is some support at 2400, 2380, 2350.
Stock Market Outlook for Tomorrow – Tue May 7 2019
For Tuesday the technical indicators are showing further signs of weakness. The morning plunge on Monday was expected but the rally back which lasted all day was impressive. But from here many investors may not be still willing to step back into stocks for a second time on Tuesday should they dip again.
At present the majority of the technical indicators are indicating weakness and a move lower for Tuesday. Momentum and the Slow Stochastic are disagreeing with the other technical indicators as they are signaling that the deeper drop on Monday won’t be repeated on Tuesday or Wednesday.
For Tuesday then, the index looks set to trade in a choppy fashion and keep to a negative bias, but a big drop is not expected.
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