On Tuesday June 18, before markets opened, news of a planned G20 meeting between President Trump and President Xi sent futures soaring.
Added to the fuel was continued speculation that the Fed would have no choice but to cut a quarter point from interest rates on Wednesday.
These two events combined to send the indexes soaring. By the close the Dow Index was up 353 points, the NASDAQ up 108 points and the S&P closed up 28 points. The S&P is within 37 points of a new all-time high.
Stock Market Outlook Chart Comments At The Close on Tue Jun 18 2019
Although on Wednesday the market’s direction will be dictated by the Federal Reserve’s interest rate decision, longer term the technical indicators are of significant importance in understanding where the market could head with or without a decrease in interest rates.
On Tuesday the index closed above the 50 day moving average for a seventh day. The closing candlestick was bullish for Wednesday.
The upper Bollinger Band and the Lower Bollinger Band are both moving away from each other. This normally indicates a larger move higher should be expected.
There is still one sell signal in play but the 21 day is still turning higher and should it move above the 50 day, it will negate that sell signal.
Aside from the one sell signal, the chart is very bullish with the major moving averages climbing higher. The 200 day is nearing the 2800 level. A move above it will be bullish for the rally.
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is positive and falling despite the market moving higher today. Often that advises we will see a negative day shortly.
- 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 June 6. The up signal was stronger on Tuesday.
- 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 signal is back positive and 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 signal has an up signal in place but it is fairly weak. The technical indicator is showing the market as 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 and it is overbought.
- 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 back rising slightly. Overall though it is moving more in a sideways direction.
- 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 Resistance Levels To Be Aware Of:
2950 is resistance
2900 is resistance
2860 is light support
2830 is light support
2800 is strong support
2795 is light support
2745 to 2750 is light support
2725 is light support
2700 is light support
2675 is light support
2650 is support
2625 is light support
2600 is support.
There was good support at the 2550 level which is back to being support.
The 2500 level is support.
The S&P has light support at 2480 and better support at 2450.
There is good support at 2425.
Below that there is some support at 2400, 2380, 2350.
Stock Market Outlook for Tomorrow – Wed Jun 19 2019
Wednesday will be all about the Fed. A cut in interest rates will send the indexes higher. A decision not to cut rates will send the indexes lower. However if the wording by the Fed is “hopeful” for a rate cut as early as July, any selling will be short-lived.
Overall the outlook is higher for the indexes and the odds of a rate cut are much higher at above 82% of analysts surveyed.
Even if the Fed does not cut rates, the rally will not be over. A dip in the indexes will bring in more buyers as the outlook will still be for stocks to climb once any period of weakness ends. A drop, if there is no interest rate cut, will be an opportunity to setup more trades which is what I will be doing. Overall though, the odds of there not being any rate cut are probably small, but as long as the wording is supportive of future cuts and dovish, any selling will be quickly recovered.