As we saw on Monday, stocks were once again on the defensive from the start of trading. There was no bounce but instead constant selling pressure with only a slight pause at the 3850 light support level for a couple of hours. When it broke shortly after 12;00 selling picked up and the index slipped to just below 3920 before some buying stopped the day’s carnage. The close was back to 3941 which wiped out all the rally from last Wednesday. The loss was 57 points for a decline of 1.4%.
The NASDAQ lost 225 points to close at 11,014 for a 2% loss. Since Monday the NASDAQ has lost almost 4%.
With the break of the 3950 level a new unconfirmed down signal from the MACD technical indicator was generated.
Let’s review the technical indicators at the close on Tue Dec 6 2022 to see what to expect for Wed Dec 7 2022.
Stock Market Outlook Chart Comments At The Close on Tue Dec 6 2022
On Tuesday the S&P closed below the 200 day moving average and the 21 day which is bearish. It touched the 100 day before bouncing into the close. The candlestick is bearish for Wednesday.
The closing candlestick is still above the 100 and 50 day moving average which is still bullish.
The Upper Bollinger Band crossed above the 200 day on Wednesday November 16 which is a bullish signal. On Tuesday the Upper Bollinger Band continued moving lower and the Lower Bollinger Band is still rising. This could signal the start of a Bollinger Bands Squeeze which, at present, looks like it will send stocks lower later this week. This is bearish.
A second up signal was generated on Wednesday Nov 30, with the 21 day moving above the 100 day.
The first up signal was Friday Nov 11 when the 21 day moving average moved above the 50 day.
The 50 and 100 day moving averages are turning higher. The 200 day is trending sideways. All three are bullish signals.
There are now 4 down signals in place since April 24 and two up signals.
The chart though is 80% bearish for Wednesday.
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 an up signal on Thursday Oct 16. On Tuesday an unconfirmed down signal was issued. The histogram turned negative.
- 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 down signal in place and is no longer signaling 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 falling.
- 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.
- 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:
4150 is resistance
4120 is resistance
4100 is resistance
4090 is resistance
4070 is resistance
4050 is resistance
4030 is resistance
4025 is light support
4000 is light support
3975 is light support
3965 is light support
3950 is good support
3925 is light support
3900 is good support
Stock Market Outlook for Tomorrow – Wed Dec 7 2022
For Wednesday the technical indicators are all bearish. There are no up signals. A new unconfirmed down signal was issued by the MACD technical indicator part way through the day on Tuesday. The signal is not yet confirmed but another down day will confirm it.
The S&P chart is 80% biased to the downside for Wednesday. While the index has a chance to bounce off the 100 day moving average, the break of the 3950 to 3940 valuation level is a blow to the bulls. It wipes out the entire rally from last Wednesday.
For Wednesday stocks will try for a better bounce but a test of 3900 and a move below it is probable.
Potential Economic and Political Market Moving Events
This week the biggest events are on Friday with consumer sentiment and 5 year inflation reports. Wedness has no reports that should affect stocks.
8:30 Trade Deficit was slightly less than expected at -$78.2 billion.
3 PM: Consumer credit level is expected to come in at $26 billion.
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