Tuesday saw the S&P tumble all the way to 3805 just above the 50 day moving average within 20 minutes of the market open. That brought a sharp bounce back which initially sent the S&P to 3866 before a second dip took the index down to 3833 by 1:00 PM. Once the index seemed to hold above 3830, buyers pushed sellers aside and by 3:30 the index was on the verge of breaking to 3900. The close saw a slight dip back but the S&P closed up 4 points to end the day at 3881. This was an incredible rally intraday that moved the index up 76 points from the low of the day to the close.
Stock Market Outlook Chart Comments At The Close on Tue Feb 23 2021
The S&P closed at 3881. The closing candlestick signals a bearish bounce for Wednesday. You can see in the chart below the drop down to the 50 day moving average average on Tuesday morning. Normally we should expect a dip back lower to start the day on Wednesday, after a rally as big as we saw on Tuesday, off the 50 day moving average.
The Upper Bollinger Band is turning sideways. The Lower Bollinger Band is turning back up. For this week we need to watch to see if the Upper Bollinger Band turns lower and the Lower Bollinger Band moves back above the 50 day. Those would be sell signals.
The 21 day moving average is dipping slightly. The 200, 100 and 50 day moving averages are still climbing.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling and is still 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 Mon Feb 23 2021. On Tuesday the down signal was confirmed.
- 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 and is no longer 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 off an oversold reading.
- 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 turning sideways with a bias up.
- 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:
4000 is resistance
3900 is resistance
3850 is support.
3800 is support.
3750 is support
3700 is light support
3600 is strong support
3550 is support
3500 is strong support
3450 is support. The 200 day moving average is just above this valuation. A drop this low would represent an 11% correction.
Stock Market Outlook for Tomorrow – Wed Feb 24 2021
The big reversal on Tuesday could signal that the drop was overdone on Tuesday, especially with the quick break below the 3850 which is a good support level. The close though was back above that important support level.
The final week of February tends to have these wider swings and negative days are not uncommon. Often we see the month of March pick up from late February selling to move higher. This has been a common event for several decades. This week may be one to add to that history.
The other issue on Tuesday was the confirmation of the down signal from Moving Average Convergence / Divergence. This is one of the more accurate technical indicators. For that reason and the closing candlestick, Wednesday should see some selling in the morning but probably nothing as deep as what we saw on Tuesday.
The outlook then is for selling in the morning, a bounce back and then a negative close to end the day. If the index closes slightly positive on Wednesday, watch for a negative day on Thursday.