Monday started out hopefully for the bulls but the morning rally was beginning to decline as the lunch hour got underway. In the early afternoon the S&P was trending sideways but was still above 2675. Then word reached the market of a possible additional tariffs being imposed on China and the market began to decline shortly after 2:00 PM. By 3:45 it seemed as if it was in free-fall with the S&P down to 2603 and the NASDAQ below 7000. The final 15 minutes saw a rally to recover about half of the afternoon drop.
Stock Market Outlook Chart Comments At The Close on Mon Oct 29 2018
The index closed well below the 200 day moving average again on Monday.
All the major moving averages are falling lower with the 21 day falling quickly toward the 200 day moving average. If it crosses below it, the market will issue a third sell signal. The Lower Bollinger Band is collapsing and the S&P is continuing to follow it lower.
On Monday the closing candlestick is bearish but it also often points to the potential for a bounce before another move lower commences.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is negative but did not fall. Instead it is moving sideways.
- 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 Sep 26. The signal was strong on Monday but is still at levels usually associated with a bounce commencing.
- 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 continuing to move sideways which confirms the market being very oversold. A bounce is still possible.
- 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 for Tuesday and is deeply oversold. Normally a bounce will follow such readings.
- 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 fell lower and is 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 fell on Monday and is oversold.
- 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:
2900 was good support – this will be strong resistance
2860 was good support – this will be resistance
2830 was light support and will be light resistance
2795 is resistance
2745 to 2750 are light resistance
2725 is light resistance
2700 was important support and may be retaken again if there is a bounce.
2675 is light support and was broken on Monday for the third time.
2650 is light support which also was broken on Monday.
2620 is light support which was tested and the market moved back above it by the close.
2600 is strong support which held the market from falling further, late Monday afternoon in the market plunge.
There is good support at the 2550 level from where the market bounced back from the recent correction low on Feb 9.
The S&P has light support at 2480. It also has light support at 2450 and good support at 2425. Below that there is some support at 2400, 2380, 2350.
2300 has the most support at present but would represent a full correction of 641 points as a drop to this level would be 21% and just 5% away from a bear market signal ending the bull market from 2009.
Stock Market Outlook for Tomorrow – Tue Oct 30 2018
The plunge on Monday pushed the technical indicators even deeper into oversold readings. We also got the first up signal. The Slow Stochastic signaled up for Tuesday. As it looks out more than single day we might see a bounce Wednesday as well.
Tuesday investors should try again for another bounce. This one might hold although there will be a lot of nervousness after Monday’s plunge. We have though, witnessed this type of rally being lost, in the past and the market did recover. Tuesday should see another rally attempt but the chance of the market closing still lower is quite high. The need for a catalyst to the upside is still not being filled. If a catalyst does appear, the market will soar back as it is deeply oversold. Instead Tuesday should see another rally attempt and a lower close for the day.
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