Stock Market Outlook for Wed Jan 26 2022 – All About The Fed

Tuesday saw another roller coaster day but almost in a repeat pattern except the close was lower in the final hour of trading.

The day opened with the $SPX plunging to 4287 before trying a rebound. That ended up being the day’s low and by lunch hour the index commenced again to climb. By 3:00 the SPX was positive at 4411 before sellers took the index back to 4356, for a loss of 1.2% on the day.

The NASDAQ also moved higher in the afternoon and by 3:00 it had reached the day’s high at 13781. From there, the NASDAQ fell back 315 points for a decline of 2.2& to close at 13539.

For Wednesday the market gets to react to Microsoft earnings which were above earnings expectation but were not a “blow-out” quarter. After hours the stock moved lower before moving higher. The big event for Wednesday though is the FOMC announcement at 2:00 PM which many believe will be the market moving event.

Let’s take a look at Tuesday’s trading action and close, to see what we should expect for Wednesday.

Stock Market Outlook Chart Comments At The Close on Tue Jan 25 2022 

The closing candlestick on Tuesday is bearish but points to the potential for a bounce. The long shadow advises investors the Wednesday will be another day of volatility which could see a bounce attempt but more selling.

The Upper Bollinger Band is rising which is a bullish signal. The Lower Bollinger Band is falling, which at present is bearish and the candlestick ending the day outside the Lower Bollinger Band often signals more selling to watch for.

The 21 day and 50 day moving averages are falling which is also bearish and the 21 day is set to fall below the 50 day by Wednesday, which would be a sell signal.

The 100 day is falling which is bearish. The 200 day moving average is is turning sideways which is neutral.

For Wednesday the chart is very bearish and the index closed below the 200 day moving average. This signals there is still more downside ahead.

Stock Market Outlook review of Tue Jan 25 2022

Stock Market Outlook: Technical Indicators Review:

Momentum: Momentum is falling and is negative. It is still signaling oversold and a bounce higher is expected.

• Settings: For momentum I use a 10 period when studying market direction.

MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Thursday Jan 6. On Tuesday the down signal gained more strength and with a reading of minus 36.46 there is still a good chance for a further bounce on Wednesday as the market remains very oversold. The MACD histogram is at a point where we often can expect a large bounce.

• 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 for a second day and just leaving 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 has an up signal in place and is signaling extremely oversold.

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. It is reaching levels which a bounce back should be expected.

• 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 and at a level which we can label oversold, where normally we would see a bounce.

• 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:

4800 is resistance

4725 is resistance

4700 is resistance

4670 is resistamce

4655 is light support.

4600 is good support

4550 is light support

4525 is light support

4500 is support

4490 is light support

4475 is light support

4450 is support

4400 is good support and the 200 day moving average

4370 is light support

4350 is light support

4300 is good support

4290 is light support

4270 is light support

4250 is good support

4225 is light support

4200 is good support

 Stock Market Outlook for Tomorrow – Wed Jan 26 2022 

For Wednesday the two big events are Microsoft earnings and how the market will react and the FOMC announcement on interest rates at 2:00 PM.

The closing candlestick is bearish for Wednesday and if Microsoft stock tumbles and the FOMC announcement is too hawkish, the index could move lower. It really is all about the Fed on Wednesday.

The index closed below the 200 day moving average on Tuesday. The SPX may recover 4400 again on Wednesday but there is a high probability the day will end with a lower close and a second close below the 200 day moving average.

If that happens the next level of any support of consequence is 4350 to 4300 which are from the October 2020 sell-off. On both Monday and Tuesday the index broke through both of those support levels. That could be setting up the index for a move lower. A lot depends on the Fed on Wednesday.

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