Tue Feb 27 2018 was all about interest rates once again. The S&P was roaring higher and pushed to 2789 almost set to break through 2790 on its way to 2800 but the testimony of Federal Reserve Chair Jerome Powell spooked investors who sold the market in a dramatic plunge. By the close all three indexes were at the lows of the day, wiping out the rally from Monday.
Closing Statistics for Tue Feb 27 2018
S&P 500 Index Close
The S&P index ended down 35.32 to 2744.28
Dow Jones Index Close
The Dow Jones ended down 299.24 to 25,410.03
NASDAQ Index Close
The NASDAQ closed down 91.11 to 7330.35
Stock Market Outlook – Review of Tue Feb 27 2018
Chart Comments At The Close:
The SPX closed ust above the 50 day moving average. It left behind a strong bearish candlestick for Wednesday.
The 50, 100 and 200 day moving averages are still climbing but the 21 day remains below the 50 day. The Lower Bollinger Band is back above the 200 day moving average. However the Upper Bollinger Band is falling so we could see a Bollinger Bands Squeeze at the end of the week or into next week.Overall the chart is not overly bearish.
Stock Market Outlook review of Tue Feb 27 2018
Stock Market Outlook: Technical Indicators:
Momentum: For momentum I use a 10 period when studying market direction. Momentum is positive but falling.
MACD Histogram: For MACD Histogram, I am using the Fast Points set at 13, Slow Points at 26 and Smoothing at 9. MACD (Moving Averages Convergence / Divergence) issued a buy signal on Feb 23. The buy signal was still gaining strength on Tuesday despite the collapse.
Ultimate Oscillator: 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. The Ultimate Oscillator signal is negative and moving lower.
Slow Stochastic: 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. The Slow Stochastic has an up signal in place but it is very overbought. Normally at this level there will be some negative days shortly as the market works out being overbought.
Relative Strength Index: The relative strength index is set for a period of 5 which gives it 5 days of market movement to monitor. It often is the first indicator to show an overbought or oversold signal. The RSI signal is falling back.
Rate of Change: 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. The rate of change is negative and falling which indicates lower prices are expected.
Support Levels To Be Aware Of:
2700 is now support.
2675 is light support.
2650 is light support and 2620 is also light support.
There is good support at the 2550 level from where the market bounced back from the recent correction.
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 as a drop to this level would be 20% and just 5% away from a potential bear market signal.
Stock Market Outlook for Tomorrow – Wed Feb 28 2018
The S&P chart is not strongly or overly bearish. Technical indicators are mixed but MACD is still gaining strength to its buy signal. Overall the sell-off looks like an overreaction by investors. However this kind of damage normally takes a bit of time to work out. A bounce is expected for Wednesday in the morning and then more selling is anticipated. If volume picks up then the selling will move the index still lower. If selling volume is lighter even if the S&P falls, there is a good chance of a turn around in the direction back to up by the end of the week.
The economic indicators are very good for the country. It is still fear of rising interest rates and what they might do for the economy and the stock market that keeps investors on edge. Many jumped into the rally back up trying to recover losses from the worst of the correction. Now many will want to take whatever profits they have and step aside, fearful that the markets will retest the Feb 9 lows. I don’t think that will happen this time around. The market was spooked on Tuesday. Wednesday should see selling and a negative close but not a drop back to close below 2700. Caution however is always advised as investing in stocks is as much about investor emotion as it is about a company’s earnings and fundamentals.
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