On Monday investors dumped stocks on the back of news of there being no stimulus deal and a eroding chance of there being any stimulus deal before the Elections. Volumes were not overly heavy but sellers kept moving stocks lower throughout the day. The close saw the S&P down 1.6% to close at 3426.
Stock Market Outlook Chart Comments At The Close on Mon Oct 19 2020
On Monday the index closed back just above the 50 and 21 day moving averages. It left behind a bearish candlestick for Tuesday. On Sunday, I indicated that the closing candlestick for Monday often is associated with a down day on the following day. We got that today. However, while today’s candlestick is bearish it is also often followed by a bounce before the index moves lower. Therefore while Tuesday is looking bearish, there is also the chance of a bounce off a very oversold day on Monday.
The Upper Bollinger Band is still turning higher and the Lower Bollinger Band is starting to rise which at present is bearish.
The 200, 100 and 50 day moving averages are climbing.
The 21 day moving average is also still turning higher and may push above the 50 day this week, which would be bullish but after today’s drop, unless there is a deal on a stimulus package, there is a good chance the 21 day will turn back down which will be bearish.
There are still 6 up signals and 3 down signals. The SPX chart is showing more bearish signs but as long as it does not fall below the 50 and 21 day moving average, the outlook is still bullish.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling but positive.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued an up signal on Oct 1. On Monday the up signal took a very strong hit.
- 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 no longer signaling 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 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:
3600 is resistance
3500 is resistance
3450 is support
3400 is support
3375 is support
3300 is support
3275 is support
3200 is support
3150 is support
3050 is support
3000 is support
2975 is light support
2950 is light support
2900 is light support
Stock Market Outlook for Tomorrow – Tue Oct 20 2020
For Tuesday there is a good chance for a bounce, especially in the morning, but the technical indicators have shifted to the downside. There are no signals pointing higher. Normally when all the signals are in agreement, we can expect the opposite to occur. However, even if there is a bounce on Tuesday morning, without a stimulus deal, stocks will move lower. For now, it is all about emotion and the stimulus deal. On Tuesday then, expect a potential bounce but a lower close without positive stimulus news.