Stock Market Outlook for Wed Dec 2 2020 – Back To Weakness But Don’t Count The Bulls Out

On Tuesday talk of another stimulus bill was enough to jump start a rally that sent the S&P and NASDAQ into new record highs. The S&P rose 40 points to close at 3662.

Stock Market Outlook Chart Comments At The Close on Tue Dec 1 2020 

Tuesday saw the index rally strongly and close above 3600 for the 5th straight trading day. The closing candlestick however is bearish for Wednesday and is signaling the potential for a down day to develop.

The Upper Bollinger Band continued to fall lower on Tuesday. The Lower Bollinger Band is climbing dramatically higher. We could see a change in trend shortly as often this move by the Lower Bollinger Band sets up the index for a potential Bollinger Bands Squeeze later this upcoming week or early next. This could become an important signal as the Lower Bollinger Band is rising very quickly. It has to be watched to be determined how it will play out.

The 21 day, 50 day, 100 day and 200 day moving averages are all rising, a bullish sign. The up signal from Oct 21 is still in play, and the chart remains bullish despite the closing candlestick and change in the Bollinger Bands.

Stock Market Outlook review of Tue Dec 1 2020

Stock Market Outlook: Technical Indicators Review:

Momentum: Momentum is falling 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 Nov 5. The up signal on Tuesday was slightly stronger.

• 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.

• 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 down signal in place. It is 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.

• 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:

3600 is resistance

3550 is support

3500 is support

3450 is support

3400 is support

3375 is support

3300 is support

3275 is support

3200 is support

3150 is support

3050 is support

3000 is support

 Stock Market Outlook for Tomorrow – Wed Dec 2 2020 

For Wednesday, the market could be ahead of itself. Tuesday’s rally was too strong although it was on good volume. The closing candlestick is bearish for Wednesday as is the Slow Stochastic. The most concerning at this point is the quickly developing Bollinger Bands Squeeze. That could see stocks move higher and lower and needs to be watched. The speed with which the Lower Bollinger Band has risen could mean the squeeze could start as early as Friday.

Wednesday’s outlook has mixed technical signals with some pointing higher and others lower. The bias though has to remain to the upside until there are more indications of a larger dip. On Wednesday then weakness will return as dips will appear, however this will not end the rally.

We should expect dips on Wednesday and probably a lower close, but don’t write the bulls off at this point. They could easily try to push the index a bit higher once again for Wednesday.

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