On Tuesday, the first day back from the long Memorial Day Weekend, investors jump started the rally again on the back of more positive vaccine news. The end of the day saw some of the strength of the rally diminish but the S&P still gained 1.2% to close at 2991.77 after spending much of the day above 3000.
Stock Market Outlook Chart Comments At The Close on Tue May 26 2020
The SPX chart continues to be bearish with 6 sell signals in the chart and a Bollinger Bands Squeeze that is still underway. While signals still point more to the upside than downside, coming out of the Bollinger Bands Squeeze, there are still not clear signals to “guarantee” a move higher out of the squeeze. We should see something develop early this week which will give us a better picture of what to expect.
There are some bullish signs however such as an up signal on May 1 when the 21 day moved above the 50 day moving average. As well the 21 day is now at the 100 day and should give an up signal on Wednesday. Also in the chart the 50 day if starting to turn back up, another good sign for the bulls.
Another bullish signal is the index closed again on Tuesday above the 200 day moving average and at the Upper Bollinger Band. This is the fourth straight day above the 200 day and the fifth close above the 200 day in 6 trading days.
Meanwhile the Upper and Lower Bollinger Bands are still climbing which is indicating that the index will move higher this week.
Bearish signals remain strong including the 200 day still leading the market and the very tight trading range over the past week.
The candlestick on Tuesday was mildly bullish for Wednesday.
Stock Market Outlook review of Tue May 26 2020
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising slightly and positive.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued an up signal on Tuesday May 19. The up signal was stronger on Tuesday by the close even with the dip into the end of the day.
- 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 falling but 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 weak down 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 is rising slightly.
- 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 turned sideways indicating not a lot of price changes are expected.
- 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 light support
2900 is light support
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 27 2020
On Tuesday investors ran into sellers who are sitting above the 3000 level and unloading stock on each spike higher. The technical indicators are showing that a move higher is still to be expected but sellers will be taking advantage of those investors willing to buy stock at elevated prices.
Despite this and despite the market being overvalued, Wednesday should see investors continue to push back at sellers and try to move higher.
A close above or at 3000 is expected but it will be a choppy day of trading on Wednesday.
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