While Monday saw stocks stage a strong recovery attempt, Tuesday saw buyers disappear until the close of the day and then only weakly make some purchases. It was the worst single day of losses for the S&P and NASDAQ since March 22 when the S&P lost 54 points and the NASDAQ lost 196 points. Intraday however, the S&P was down 73 points by 3:40 PM which was the biggest decline since Dec 4 2018.
Investors remain worried over a possible escalation of the tariffs with China which many analysts believe will lead to a further global slow down. This in turn, analysts are advising investors, will impact earnings of all companies, not just those with direct dealings with China. That could mean stocks may prove to be overvalued at present levels if earnings move lower in subsequent quarters. All of this is weighing on investors and as we all know, selling as it increases, draws more investors in.
Stock Market Outlook Chart Comments At The Close on Tue May 7 2019
On Tuesday the S&P slipped below the 21 day moving average and came within a few points of touching the 50 day moving average.
The closing candlestick on Tuesday is bearish for Wednesday although a drop this steep often will see a bounce to start the next day or during the early part of the day.
Note that the Lower Bollinger Band was broken through by the S&P on Tuesday. This is a negative indicator and signals more downside is ahead unless a catalyst to the upside can be quickly found. That catalyst of course could be a delay of the tariffs on Friday or even a trade agreement of sorts. Until then, the outlook remains bearish.
The Bollinger Bands Squeeze is underway and the outlook is for a move lower for the index.
All the major moving averages are moving ahead with the 50 day and 100 day both moving away from the 200 day. The 100 day is now above the 2800 level.
Stock Market Outlook review of Tue May 7 2019
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is negative and falling.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Wednesday May 1. On Tuesday the down signal was stronger again.
- 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 positive but falling and ready to turn negative.
- 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 down signal in place.
- 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 is oversold. It is reaching levels where shortly a bounce 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 is at levels where it is oversold and a bounce could be 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 Resistance Levels To Be Aware Of:
2950 is resistance
2900 is light support
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 May 8 2019
The technical indicators are all pointing to further weakness. Two though are reaching oversold levels where normally a bounce would be expected. That could mean although Wednesday will be lower for stocks, we could be nearing a sideways move.
2860 is support for the market followed by 2830 and then strong support is at 2800.
Stocks are in need of a catalyst to the upside. On Wednesday expect the index to break below 2860 but perhaps try to rally and then it may dip again and try to reach 2850 or perhaps as deep as 2830, but normally after two strong days of selling where there is no economic change, we should see a slowdown in the selling.
I sold half of the SPY Put options positions and half of the VIX Index positions on Tuesday. I intend to buy more protection again, if there is a bounce Wednesday morning.
I did not expect the index to break back below 2900 on Tuesday and on large volume. Unless there are positive signals building to change the outlook for investors, more selling lies ahead. Friday could be particularly ugly if the IPO for Uber is priced too aggressively unless by Friday there is news of a delay in further tariffs with China. But that’s for Friday. For Wednesday, I am expecting a bit more selling near the open, a bounce attempt and then another move probably lower to at least 2860 or 2850. An afternoon bounce is also possible but the close will still be lower.
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