A number of factors came together to boost the oversold markets into a strong rally on Tuesday.
Earnings from Johnson and Johnson, United Health Group and Goldman Sachs were cited as reasons for the bounce at the start of the day but there were many factors including declining tensions with Saudi Arabia, a lower dollar, bond yields not climbing and an impressive JOLTS report which continued to show the economy at the best levels for job openings since records commenced in 2000.
By the end of the day all three indexes closed at their highs with the Dow up 548 points, the NASDAQ higher by 215 and the S&P up an equally impressive 59 points, closing above 2800.
Stock Market Outlook Chart Comments At The Close on Tue Oct 16 2018
The index closed below the 100 day moving average on Tuesday at 2810 having broken through resistance at 2770 and 2795 during the day.
The movement was higher throughout the day with the index closing at the day’s high.
This left behind a bullish candlestick for Wednesday.
As well you can see that the 21 day moving average that has been at the point of a down signal, has changed and is now moving above the 50 day moving average thanks to the massive rally on Tuesday.
All the major moving averages are still falling, but the Lower Bollinger Band is turning sideways which is also bullish for stocks. There was no sell signal on Tuesday and a move higher on Wednesday will negate any sell signal at present.
Stock Market Outlook: Technical Indicators Review:
All indicators are moving higher on Tuesday.
Momentum: Momentum is negative but rising sharply.
- 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 Sep 26. The signal is not as strong on Tuesday at the close as it was in prior days.
- 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.
- 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 still has a strong up signal in place for Wednesday. This is the second up signal in a row.
- 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 rose sharply 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 also rising sharply.
- 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:
2900 was good support – this will be strong resistance
2860 was good support – this will be resistance
2830 was light support and will be light resistance
2795 is light support
2745 to 2750 is light support
2725 is light support.
2700 is important support.
2675 is light support.
2650 is light support
2620 is light support
2600 is strong support.
There is good support at the 2550 level from where the market bounced back from the recent correction low on Feb 9.
The S&P has light support at 2480. It also has light support at 2450 and good support at 2425. Below that there is some support at 2400, 2380, 2350. 2300 has the most support at present but would represent a full correction as a drop to this level would be 20% and just 5% away from a potential bear market signal.
Stock Market Outlook for Tomorrow – Wed Oct 17 2018
The slow stochastic indicator last night was correct in its up signal. It is still in place for a second day.
The rally on Tuesday was massive. It was broad based with all sectors of the market rising.
The technical indicators are still primarily negative but they are all rising and showing signs that the market may try to move higher on Wednesday.
After such a strong rally and a close at the high, the day after usually sees a dip to start the day and then a continuation of the rally. A dip is therefore likely for Wednesday in the morning but a higher close is to be expected.
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