Stocks collapsed on Monday as Covid-19 outbreaks rising mixed with a fading chance of a stimulus bill before the elections, sent investors to the exit in a day that saw average volume. By the close stocks we were off their lows and the index was back at 3400.
Stock Market Outlook Chart Comments At The Close on Mon Oct 26 2020
Monday’s chart shows a long red candlestick that closed at the 50 day moving average after breaking below the 21 day. The drop of 64 points was the worst day since Sep 23 when the index lost 78 points.
The closing candlestick on Monday is bearish but also usually points to a large potential for a bounce. Often though it takes more than a single day for a bounce to occur.
The 200, 100, 50 and 21 day moving averages are climbing which is bullish.
The index still looks more bearish tonight and the Bollinger Bands Squeeze is almost set to start and the Lower Bollinger Band has moved above the 100 day moving average. We may see the index move lower, heading into the elections next week.
Stock Market Outlook review of Mon Oct 26 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling and has turned negative.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Oct 25. On Monday the down signal was confirmed with a large -4.18 reading.
- 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 which could point to a bounce shortly.
- 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 down signal in place.
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 27 2020
Normally following a large move lower investors can expect a bounce of some kind. As well, with the index breaking the 21 day and 50 day, a bounce off the 50 day would be very normal.
However a drop as large as Monday’s often needs more than one day before it bounces. Still, we could see the index try to rally at the open on Tuesday and then fall lower before buyers come back in.
The outlook for Tuesday then is still negative with a good chance for a bounce of some kind. If there is no bounce on Tuesday, we should expect one for Wednesday. A last minute stimulus bill will turn the index right around to move back up.
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