On Tuesday investors were busy digesting Monday’s big jump when a negative report on the Moderna vaccine drug trial hit the markets and investors turned nervous. Remember yesterday when I commented on negative vaccine news? Investors decided to take some profits particularly in the last hour when sell volume escalated. This left the indexes to close at their lows on the day and negative. Will this change the outlook for stocks for tomorrow? Let’s look at the technical indicators to see.
Stock Market Outlook Chart Comments At The Close on Tue May 19 2020
The SPX chart continues to be bearish with 6 sell signals in the chart and a Bollinger Bands Squeeze that is still underway. There are though more signs for the bulls with one up signal from May 1 with the 21 day moving average, back above the 50 day. Since moving above the 50 day the 21 day has turned sideways and given no further up signals.
The Upper Bollinger Band however is turning up which could be a signal that the Bollinger Bands Squeeze will end with the index pushing higher above the 200 day moving average. This would be a very bullish signal.
The candlestick on Tuesday is bearish for Wednesday but also often signals a bounce back. We could therefore see a bit more selling in the morning and then a bounce back.
We should see the 21 day resume its trend up and the Lower Bollinger Band should start to fall lower this week which will be two more signals for the bulls.
The index closed at the 200 day moving average on Tuesday, itself a bullish indication.
Stock Market Outlook review of Tue May 19 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling but still positive.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a confirmed down signal on Wed May 13 2020. The down signal was wiped out today and a weak up signal was generated despite the late day sell-off.
- 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 rising 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 a strong up signal in place for Wednesday.
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 tumbled on Tuesday.
- 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 still rising slightly advising that we shouldn’t expect prices to jump a lot higher Wednesday, but the trend is for higher prices.
- 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:
3000 is strong resistance
2950 is resistance
2900 is light resistance
2860 is light support
2840 is light support
2800 is good support
2725 is light support
2700 is light support and marked a drop of 20.4%.
2675 is light resistant
2650 is light support
2625 is light support
2600 is support
2550 is light support
2500 was good support and marked a correction of 26.3%
2344 is the next level of support and marks a 30.9% correction.
2191 was the market low on March 23 and most analysts believe this is the low point we will see.
2100 is light support
2000 is good support and marks a drop of 1393 points for a 41% correction. Some analysts believe the index will fall this low before the bear market ends.
Stock Market Outlook for Tomorrow – Wed May 20 2020
The S&P index chart is still bearish but there are further signs of bullishness even on Tuesday with the late day sell-off.
The technical indicators did take a hit on Tuesday. However two important indicators are still pointing higher. These are the Moving Average Convergence / Divergence and Slow Stochastic. On Tuesday MACD issued a new up signal which is not yet confirmed but should be on Wednesday. The Slow Stochastic had an upsignal on Monday at the close and continued with an up signal today at the close.
Weakness on Tuesday following Monday’s huge run up was understandable. However the close at the low on Tuesday could setup further weakness in the morning on Wednesday, but overall the technical indicators are far more bullish than bearish for Wednesday. We should see the S&P end the day higher tomorrow in what will be a choppy session.
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