The afternoon rally from the lows of the day was impressive on Monday but whether it signals the end of the pullback is unlikely.
Market breadth was decidedly negative although by the close of the day volume had turned positive. Investors remain concerned about rising rates but they are also aware that earnings start shortly and the outlook is strongly positive for earnings and for the holiday shopping season.
Stock Market Outlook Chart Comments At The Close on Mon Oct 8 2018
The S&P broke through the 21 day moving average easily on Monday morning but the close was right back at the 50 day moving average. Unfortunately the Lower Bollinger Band is rising while the Upper Bollinger Band is starting to turn lower which could signal a resumption of the Bollinger Bands Squeeze. The closing candlestick on Monday was bearish for Tuesday.
The 21 day and 50 day moving averages are starting to turn sideways but the 100 and 200 day moving averages are still climbing.
At present the chart is somewhat bearish but not overly.
Stock Market Outlook review of Mon Oct 8 2018
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is negative and starting to rise.
- 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 down signal was very strong on Monday.
- 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 negative but it is trending higher..
- 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 still now has a strong 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 lower and trying to rise from 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 is rising and has not yet turned negative throughout this pullback.
- 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 Levels To Be Aware Of:
2900 was good support.
2860 is good support
2830 is light support
2795 is light support
2745 to 2750 is light support
2725 is light support.
2700 is support.
2675 is light support.
2650 is light support
2620 is light support
2600 is strong support.
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 as a drop to this level would be 20% and just 5% away from a potential bear market signal.
Stock Market Outlook for Tomorrow – Tue Oct 9 2018
There was a lot of momentum to the upside on Monday afternoon with decent volume.
Tuesday should see stocks continue to push higher early into the morning even if the open does dip. By late morning though we should see stocks pullback.
It will be a choppy day of trading on Tuesday and despite being oversold, the outlook is for the index to bounce but close lower on Tuesday.
If the index closes higher on Tuesday, Wednesday will be negative.
Normally the index will bounce off important technical indicators and the 50 day moving average is an important one. However a bounce does not change the underlying trend for the S&P at present. Any bounce is highly suspect.
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