The big news on Tuesday was all about Tesla and Elon Musk’s tweet about taking the company private. The market is showing signs of being overbought as Tuesday saw the indexes push higher off the momentum created by Monday’s rise. However the close left behind a candlestick that advises we could see some weakness on Wednesday or Thursday. Let’s review the outlook after markets closed on Tuesday.
Stock Market Outlook Chart Comments At The Close on Tue Aug 7 2018
The S&P ended the day on Tuesday at the Upper Bollinger Band but it closed well off the highs of the day. This left behind a bearish candlestick which often signals a pullback or dip in the following day. This will not break the uptrend but it will stall it.
All the major moving averages are still climbing but you can clearly see the Bollinger Bands Squeeze formed by the Lower Bollinger Band now up to the 50 day moving average. A dip is likely before more upside.
Stock Market Outlook: Technical Indicators Review:
Momentum: For momentum I use a 10 period when studying market direction. Momentum is positive and sideways.
MACD Histogram: For MACD Histogram, I am using the Fast Points set at 13, Slow Points at 26 and Smoothing at 9. MACD (Moving Averages Convergence / Divergence) issued an up signal on Mon Aug 6 2018. The up signal was confirmed today.
Ultimate Oscillator: 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. The Ultimate Oscillator signal is positive and rising. It is slightly overbought.
Slow Stochastic: 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. The Slow Stochastic has an up signal in place for Tuesday and is overbought.
Relative Strength Index: 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. The RSI signal is rising and overbought.
Rate of Change: 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. The rate of change signal is moving lower indicating that a dip in prices may occur shortly.
Support Levels To Be Aware Of:
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 – Wed Aug 8 2018
The technical indicators are still quite strong but they are also signaling overbought.
Wednesday should see the markets take a dip, morning or over the lunch hour. The close should be negative but this will not break the rally. It will only stall it by a day or two. If the market does not pullback on Wednesday, it should pullback by Thursday.
There is a strong indication that the morning will see a dip and a potentially lower close before the market continues to advance in a day or two.
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