Investors were taken by surprise by Fed Chair Powell’s testimony on Tuesday and his comments that interest rates may have to rise higher than originally thought, if inflation does not pullback. Despite his more dovish comments about core inflation dipping, investors sold against his comments, sending stocks on the SPX down 1.5% for a 62 points loss. The index closed at 3986, back below 4000.
The NASDAQ slipped 1.25% for a 145 point loss to end the day at 11,530.
With a second day of testimony ahead for Powell, investors are bracing for more selling on Wednesday but the technical indicators might surprise.
Let’s review the closing technical indicators from Tue Mar 7 2023 to see what we should expect for Wed Mar 8 2023.
Stock Market Outlook Chart Comments At The Close on Tue Mar 7 2023
On Tuesday the S&P closed back below the 4000 level. This left the index below the 21 day, 50 day and 200 day moving averages.
The index closed bearish for Wednesday but the closing candlestick also points to a bounce attempt. If there is no bounce on Wednesday due to Powell’s further comments today, we could see a bounce on Thursday ahead of Friday’s unemployment report.
The Upper Bollinger Band is turning lower and the Lower Bollinger Band is also turning lower which indicates the chance of a Bollinger Bands Squeeze is reduced, but the outlook is bearish.
The 200 day moving average is rising which is bullish. The 21 day is falling which is bearish. The 50 day moving average moved above the 100 day moving average intraday on Friday and was climbing on Tuesday. This is bullish.
At present there is just one down signal in place since April 24 and 5 up signals since Jan 13. We need to see the 50 and 100 day moving averages climb above the 200 day to end the last remaining down signal.
The chart is 50% bullish for Wednesday.
Stock Market Outlook review of Tue Mar 7 2023
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising and negative despite Tuesday’s sell-off.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) down signal was unchanged on Tuesday. There are signs that the strength to the downside is eroding.
- 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 and positive.
- 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 moving away from oversold. The up signal though could become a down signal quickly if the index slips further.
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 sharply and back negative.
- 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 negative.
- 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:
4250 is resistance
4220 is resistance
4200 is resistance
4180 is resistance
4150 is resistance
4125 is resistance
4100 is resistance
4090 is resistance
4075 is resistance
4050 is resistance
4030 is resistance
4025 is resistance
4000 is light support
3975 is light support
3965 is light support
3950 is good support
3930 is light support
3900 is good support
Stock Market Outlook for Wed Mar 8 2023
Wednesday will again be all about the Fed as Powell enters a second day of testimony, this time in front of the House. More weakness is likely but the technical indicators are not completely bearish. There are still some signals advising that Tuesday’s sell-off may have been overdone and we could see a bounce attempt at any time.
Watch for a lower day but with spikes higher at varying times. Investors also get the Fed’s Beige Book but I would not expect anything unknown after the Fed’s testimony.
The index could easily reach 3950 for a close but a heavier day of selling is unlikely. Instead I would expect a down day between 20 to 40 points lower.
Potential Economic and Political Market Moving Events
On Wednesday Fed Chair Powell enters his second day of testimony. The major impact could have been on Tuesday. Watch for spike attempts from investors. Friday we get the February unemployment report. That could see stocks fall lower again.
Wednesday:
8:15 ADP employment expect to be 205,000
8:30 Trade Balance expected to be -68.7 billion
10:00 Fed Chair Powell testifies to House
10:00 Job openings
2:00 Fed’s Beige Book but not surprises are expected
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