On Tuesday stocks were hit with a “double whammy”. First came more fears of the spread of the omicron variant and the possibilities of a return to lock downs and more restrictions. The in testimony on Tuesday, Fed Chair Powell turned hawkish and dropped the term transitory when speaking about inflation, indicated the Fed may have to move quicker to curtail inflation and end the bond buying programs earlier than expected. This about-face from accommodative to hawk caught the markets by surprise resulting in investors “selling first” and “asking questions later”. This resulted in the second nasty sell-off in just 3 trading days with the S&P down 88 points to 4567 and the NASDAQ down 245 points to close at 15,537.
Market breadth was decidedly bearish throughout the day which at one point saw up volume at less than 8% of all volume being traded on New York.
Let’s review the technical picture from Tuesday’s close to see what’s in-store for Wednesday and whether the selling is drying up or, as some analysts predicted at the close on Tuesday, just getting started.
Stock Market Outlook Chart Comments At The Close on Tue Nov 30 2021
There are a number of important technical changes in the chart. The first is the Bollinger Bands Squeeze is already starting to end. If correct, the outlook is negative out of the current Bollinger Bands Squeeze,
Second is the candlestick from Tuesday was is very bearish and near the 50 day moving average. A drop to at least the 50 day is likely. Any bounce will be smaller than Monday’s big rally.
Third is the 20 day moving average which is turning lower signaling further downside lies ahead for the index.
The other remaining moving averages, namely the 50, 100 and 200 day are still climbing. This is bullish.
For Wednesday the chart is more bearish than bullish.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling and negative.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Wed Nov 17 2021 . On Tuesday the down signal increased further in strength.
- 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.
- 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 strong down signal for Wednesday. It is also entering oversold signals which often are followed by a bounce.
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 into oversold signals. Often a bounce will occur when the index is oversold but any bounce on Wednesday will be small.
- 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 further.
- 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:
4700 is resistance
4655 is resistance
4600 is good support
4550 is light support
4525 is light support
4500 is support
4490 is support
4475 is support
4450 is support
4400 is support
4370 is light support
4350 is light support
4300 is light support
Stock Market Outlook for Tomorrow – Wed Dec 1 2021
The technical indicators are signaling that a fair amount of damage has been done over the past 3 trading days. Monday’s rally has low market breadth which simply added to the downside today.
For Wednesday the technical indicators are pointing to a chance for a bounce, but still lower before selling will “dry up”.
Any bounce on Wednesday has no chance of holding. As well, any bounce will not be the size of Monday’s bounce. Instead it will be much smaller and end early.
The index looks positioned to bounce and then dip lower and reach the 50 day moving average around 4535.
Next support is down at 4500 for the S&P. Markets will stay in turmoil until investors have “digested” this new hawkish tone of the Fed.