Tuesday was more a sideways day than anything else as investors watch stocks basically “tread water” ahead of the Fed’s decision on interest rates due out Wednesday afternoon at 2:00 PM.
The S&P closed flat, the Dow was up 82 points and the NASDAQ rose 30 points. Nothing in the action on Tuesday would suggest the market downturn is nearing a bottoming process.
Stock Market Outlook Chart Comments At The Close on Tue Dec 18 2018
The S&P chart remains bearish with 5 sell signals. As well the 100 day is preparing to fall below the 200 day which will be a major sell signal and a time to consider further protective strategies.
The market is very oversold but that is not making any difference at present. The closing candlestick on Tuesday was bearish.
The Bollinger Bands continue to fall, pointing to more downside ahead for the S&P.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is negative and falling. It is deeply oversold as you can see in the chart.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Mon Dec 10 2018. That down signal is very strong on Tuesday’s close.
- 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 signal is moving sideways and near 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 very oversold with a strong down signal.
- 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 very 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 also falling and oversold.
- 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 Resistance Levels To Be Aware Of:
2900 was support – this will be strong resistance
2860 was support – this will be resistance
2830 was light support and will be light resistance
2800 is strong resistance
2795 is light resistance
2745 to 2750 is light resistance
2725 is light resistance
2700 is resistance
2675 is light resistance
2650 is light resistance
2620 is light support
2600 is strong resistance.
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 of 641 points as a drop to this level would be 21% and just 5% away from a bear market signal ending the bull market from 2009.
Stock Market Outlook for Tomorrow – Wed Dec 19 2018
There are no positive signals from the technical indicators for Wednesday, but much of the day will belong to the Fed.
I am expecting a rate increase followed by careful wording indicating that further rate hikes are on hold and will be data dependent to try to calm the markets.
Overall I think the Fed has done enough damage that the market will not recover much above 2830 through the first quarter of 2019. Between removing liquidity over the past couple of years and raising rates without always having supportive data, the S&P looks set to fall to at least if not below 2500.
The early afternoon on Wednesday should see markets climb in anticipation of the Fed comments and hope by some investors of no interest rate hike. I think the chance of that happening is extremely unlikely. A spike may occur right after the announcement and then further selling in the later half of the afternoon.
If there is no interest rate hike, the market should be able to rally for a couple of days. Caution is warranted as markets remain treacherous with no signals advising there is a bottom forming to the correction. The next sell signal will come when the 100 day moving average falls below the 200 day. That will leave the 200 day leading the S&P which is very bearish. The last time the 200 day lead the S&P was in Jan to Apr 2016.
Historically, remember that with the majority of stocks now in bear market ranges and the index itself down 13%, most major corrections fall to 15% before ending. If this holds true for the present correction, the index has just 2% more to fall which is basically around 50 more points which would place it at 2500. If it fails to bounce back, then the next move is a deepening into what is probably a new bear market.
The main problem at present is the end of the year arriving with many buyers leaving for the holidays. The so-called Santa Claus rally looks like it will not come this year but sometimes markets can surprise. Fingers crossed that markets do not come unglued any further.
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