Monday was a typical sell-off day. Selling creates more selling as nervous investors decided to move out of stocks and return to cash. As more investors sold, even more joined in. Volumes on both New York and the NASDAQ were high at over 5 billion shares traded on each. Much of the volume arrived mid-afternoon as the indexes moved lower and broke down to the 100 day moving average. The break of the 100 day has not occurred since October 2020 although in early March 2021 investors almost pushed the SPX down to the 100 day. This marks the first significant correction of the year and analysts are split on whether this marks the end of the correction or the start of a move down to the 200 day or, as some analysts have predicted, a 20% correction in October.
On Monday the S&P lost 75 points to close at 4357 although in the afternoon it was down at 4305, below the 100 day moving average. The NASDAQ lost 330 points closing at 14713. At one point the NASDAQ was down 513 points. Buyers after 3:00 PM pushed back hard and sent the indexes higher. The indexes are now deeply oversold and it is rare in a bull market for a bounce not to occur off a drop to the 100 day moving average. Here are the technical indicators from Monday’s close.
Stock Market Outlook Chart Comments At The Close on Mon Sep 20 2021
The index opened at the Lower Bollinger Band and fell below the 100 day moving average by the afternoon. The dip to the 100 should spark a bounce.
The Lower Bollinger Band is falling as is the Upper Bollinger Band. A Bollinger Bands Squeeze may still occur later this week but is now less likely.
The candlestick for Tuesday is bearish but typical for a large bounce.
The 21 and 50 day moving averages are continuing to dip lower which is bearish.
Only the 100 and 200 day moving averages are climbing. For Tuesday there are now more bearish signals than bullish ones on the SPX chart but it does point to a potential bounce.
Stock Market Outlook review of Mon Sep 20 2021
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling and negative. It is showing very oversold.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Thu Sep 9. On Monday the down signal rose strongly again and is oversold.
- 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 dipping lower.
- 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 near oversold 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 is falling and 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 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:
4550 is resistance
4525 is resistance
4500 is resistance
4490 is resistance
4475 is light support
4450 is light support
4400 is good support
4370 is good support
4350 is light support
4300 is light support
4290 is light support
4270 is light support
4250 is good support
4225 is light support
4200 is good support
4175 is light support
4150 is light support
4100 is good support
4070 is light support
4050 is light support
4000 is good support
3900 is support
3850 is support
3800 is support
3750 is good support
Stock Market Outlook for Tomorrow – Tue Sep 21 2021
For Tuesday the chance for a technical bounce is very high. Most of the technical indicators are pointing to a bounce higher.
For investors, they should expect a rally at the open which could dip mid-morning but then try to stage a second rally. The close should be positive.
The SPX is sitting with support at 4350 and then 4370. I would expect a bounce to move above 4370 easily. After the bounce on Tuesday we will get some indication whether the sell-off on Monday was another one day event with investors over-reacting or whether there is more downside ahead.
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