Monday saw high volumes and lower closes again on all three indexes. However the number of new lows fell back slightly and on the NASDAQ 28% of the volume traded was to the upside. There are signs after the close on Monday that stocks are stretched to an extreme point where the first up signal can be seen.
The S&P lost 38 points to close at 3655. The NASDAQ lost 65 points to end the day at 10,802. The NASDAQ saw the least losses for the month of September on Monday.
Let ‘s review Monday’s close to see what to expect for Tuesday.
Stock Market Outlook Chart Comments At The Close on Mon Sep 26 2022
At the close of trading the S&P closing candlestick is bearish for Tuesday but again is also signaling a strong chance of a bounce. Both Friday and Monday the candlestick closed below the Lower Bollinger Band which is a sign of intense selling pressure. Usually this results in a bounce to relieve the extreme selling.
The 21 day moving average continued its descent.
The Upper Bollinger Band is back falling and may end up below the 200 day moving average which is bearish. The Lower Bollinger Band is still falling indicating stocks have not yet bottomed.
All the moving averages are still falling which is bearish.
The 200 day continues to decline. The 100 day moving average is falling and may cross below the 50 day early this week.
There are now 4 down signals in place since April and no up signals.
The chart is 95% bearish for Tuesday with just the closing candlestick still offering hope a bounce could be take shape.
Stock Market Outlook review of Mon Sep 26 2022
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling sharply and extremely negative. It is signaling a bounce could happen at any time. The reading of 88.92 at the close is almost at the June low’s reading of 87.79 before stocks bounced.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Monday Aug 22. On Monday the down signal gained strength. The histogram also gained strength. Both signals are gaining strength to the downside. The reading of -27.62 is almost as low as the June 16 reading of -30.79. These are extreme signals that almost always see a bounce.
- 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 and back negative. It is oversold.
- 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 is the first technical signal that has changed to an up signal. Signals are back to what we saw in mid-June before the market bounced.
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. The signal at 11.72 is lower than any reading done in mid-June. It is at an extreme reading reflecting the intense selling. It is ready to bounce.
- 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 at the lowest reading since the pandemic collapse in March and April. It is beyond the negative signals from June’s plunge. A bounce should be expected.
- 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:
4000 is light resistance
3975 is light resistance and is a decline of 17.5%
3950 is light resistance
3925 is light resistance
3900 is light resistance
3875 is light resistance
3850 is light resistance
3825 is light resistance
3810 is light resistance
3800 is light resistance
3775 is light resistance
3750 is light resistance
3730 is light support
3700 is good support
3675 is light support
3650 is light support
3625 is light support
3600 is good support and is a decline of 25%
Stock Market Outlook for Tomorrow – Tue Sep 27 2022
As you can see following Monday’s close, while the numbers may look glum for new 52 week lows, bearish volume, down signals and more, there are a string of oversold signals that are at levels seen in June’s market plunge and the pandemic plunge in 2020. The Slow Stochastic meanwhile has turned to an up signal to advise the market is so oversold it will bounce. If not on Tuesday, which seems very likely, then Wednesday.
The question to ask now is whether the market is at a crossroad as unknown as the pandemic collapse, because the technical indicators are at levels seen in that collapse. Is the current bear market signaling something far worse than the pandemic unknown which investors experienced in 2020? That collapse saw a loss of 1070 points for a 32% decline in a wild panic driven collapse. The current bear market which today touched 3644, almost the June 16 intraday low, is a loss of 1179 points from it Jan 52 week high marking a decline of 24%. While as a percentage the losses are not as steep, they are similar and in some cases investors have felt this decline more since it has dragged on for what seems longer and as more stocks has seen valuations literally collapse and continue to collapse.
The biggest problem stocks continue to face this year is the Fed pulling liquidity out of the market when during the pandemic collapse they placed hundreds of billions into markets to prop it up. The Fed constantly had the back of investors through the pandemic which pushed many stocks to elevated valuations that looking back, often made little sense. Now the Fed has left investors “twisting in the wind” with no safety net to speak of. Presently then, while a bounce is highly likely it is questionable how big a bounce or if it will be just for a day or could it last longer? Until the Fed signals a slowing of interest rates or inflation numbers decline and unemployment numbers begin to rise, every bounce will continue to fail at some point. But for now the focus is on Tuesday September 27 and a bounce appears likely.
Potential Market Moving Events
The biggest market moving event for the week is on Friday when we get more inflation numbers. On Tuesday though we could see markets react a bit to the home price index and especially consumer confidence index.
Tuesday:
Five Fed Presidents speak or are interviewed throughout the day on various subjects. Fed Chair Powell speaks at 7:30 AM on digital finance.
8:30 durable goods orders and capital goods orders
9:00 Case Shiller US home price index
10:00 Consumer confidence index
10:00 New home sales
Stock Market Outlook Archives
Stock Market Outlook for Fri Apr 26 2024 – Higher and Positive Close
Morning Investing Strategy Notes for Thu Apr 25 2024
Stock Market Outlook for Thu Apr 25 2024 – Weakness and Lower
Morning Investing Strategy Notes for Wed Apr 24 2024
Stock Market Outlook for Wed Apr 24 2024 – Some Weakness But Higher Close
Morning Investing Strategy Notes for Tue Apr 23 2024
Stock Market Outlook for Tue Apr 23 2024 – Bounce But Lower
Morning Investing Strategy Notes for Mon Apr 22 2024
Stock Market Outlook for Mon Apr 22 2024 – No Change – Deeply Oversold Bounce Possible
Morning Investing Strategy Notes for Fri Apr 19 2024
Stock Market Outlook for Fri Apr 19 2024 – Deeply Oversold – Bounce Likely – Higher Close
Morning Investing Strategy Notes for Thu Apr 18 2024
Stock Market Outlook for Thu Apr 18 2024 – Deeply Oversold – Bounce Attempt Expected
Morning Investing Strategy Notes for Wed Apr 17 2024
Stock Market Outlook for Wed Apr 17 2024 – Another Bounce Attempt
