On Tuesday the SPX fell to 4280 early morning and then rallied strongly to 4325 by 2:00 PM. Sellers then jumped in and pushed the SPX back to 4290. That brought in buyers again and the index closed above 4300 at 4305. The S&P is up 4% in August on what has been a steady stream of buying. The NASDAQ closed lower by 25 points to end the day at 13,102. Two stocks in particular drove prices higher on the SPX on Tuesday. Walmart which beat lowered earnings estimates and Home Depot which crushed estimates.
The end of the day saw a second up signal generated which is discussed below.
Let’s review the closing technical indicators from Tuesday to see what to expect for Wed Aug 17 2022.
Stock Market Outlook Chart Comments At The Close on Tue Aug 16 2022
The closing candlestick is bullish for Wednesday but again points to a potential dip in the morning as it indicates the index is overbought. The candlestick is above the 200 day moving average for a fifth day.
The 21 day moving average is still rising and moved above the 100 day moving average today. This is a second major up signal.
The first up signal since April was released Tuesday Aug 2 when the 21 day moving average crossed above the 50 day moving average.
The Upper Bollinger Band is rising and continued to move above the 200 day moving average which is bullish.
The Lower Bollinger Band is climbing higher again which is bullish.
The 200 and 100 day moving average are now trending sideways which is neutral.
There are now 2 down signals still in place with one down signal wiped out by Tuesday’s new up signal. The index now has two up signals.
The chart is 90% bullish for Wednesday. A reading this high often sees selling during the day. Watch for dips on Wednesday.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising and positive.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued an up signal on Monday June 27. On Tuesday the up signal gained strength. The histogram also improved. Both are bullish.
- 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 and overbought.
- 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 and is extremely overbought.
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 rising and overbought.
- 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.
- 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:
4350 is strong resistance
4325 is strong resistance
4300 is strong resistance
4290 is light resistance
4275 is light resistance
4265 is light resistance
4250 is stronger resistance
4220 is light support
4200 is light support
4150 is light support
4100 is light support
4050 is light support
4025 is light support
4000 is light support
3975 is light support and is a decline of 17.5%
Stock Market Outlook for Tomorrow – Wed Aug 17 2022
On Tuesday the S&P managed to reach 4325 but as shown in the support and resistance chart above, 4325 is strong resistance. A second up signal was generated. This leaves the S&P with 2 down signals and 2 up signals.
The technical indicators are strongly bullish and most are showing overbought readings. That means even with the closing candlestick being bullish, there is a growing chance of the index slipping and possibly even closing lower.
Wednesday morning we get more retail numbers from the likes of Lowes and Target, to mention two stocks. If they beat on earnings the index will climb but if there is a miss, the candlestick is signaling we could see some selling.
For now dips, even large ones are still opportunities to setup trades. If there is a dip, especially a large one, I will be setting up another SPY Market Direction Portfolio trade.
For Wednesday the outlook is overbought which means dips are likely but a higher close is still expected. Just remember, the SPX is up 4% so far this month. A down day will be coming shortly. It could be as early as Wednesday.
Potential Market Moving Events
There are a number of potential market moving events this week but the primary focus will be on retail earnings. On Wednesday the FOMC minutes at 2:00 PM could impact market direction.
8:30 Retail Sales for July and retail sales ex-autos
10:00 Business inventories
2:00 Fed minutes are released – these could impact market direction although nothing new is expected in the notes.