Stock Market Outlook for Wed Oct 20 2021 – Overbought But Still Higher

Stock Market Outlook - Higher

Tuesday was another strong day of gains on both the S&P and NASDAQ indexes. The S&P closed at 4519 up 33 points, just 27 points from the 52 week high and all-time high.

The NASDAQ closed up 107 points to end the day at 15,129 on stronger and rising volume throughout the day. The index is now 274 points from the all-time high of 15,403.

Let’s review Tue Oct 19 closing technicals and see what to expect for Wed Oct 20.

Stock Market Outlook Chart Comments At The Close on Tue Oct 19 2021 

Tuesday saw the index close above the Upper Bollinger Band. This is bullish but also a signal of an overbought market. The last 5 days have produced one of the best rallies in months for the S&P and left behind the downturn which started in early September. With many bears now rushing to snap up whatever stocks they feel are left to push higher, the market is becoming heated and the last two candlesticks are indicating to prepare for a down day or at least a flat day.

The closing candlestick on Tuesday is bullish for Wednesday but also warns there is a potential for just a flat to slightly higher gain.

The Upper Bollinger Band is rising and the Lower Bollinger Band is falling, both of which is bullish.

The 21 day moving average which fell below the 50 day last week, is now turning higher and could cross above the 50 day shortly. This is bullish.

The 50 day is also turning higher as is the 100 and 200 day moving averages. This is bullish.

For Wednesday the only bearish concern is the closing candlestick warning which is not pointing to a big down day of any kind. Instead it is signaling overbought, time for a breather to consolidate some of the gains.

Stock Market Outlook review of Tue Oct 19 2021

Stock Market Outlook: Technical Indicators Review:

Momentum: Momentum is strong and trending sideways or unchanged 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 Wed Oct 13 2021 . On Tue Oct 19 the up signal was much stronger again which indicates more upside ahead but also reaching into overbought readings.

  • 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 rising and signaling overbought.

  • 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 into extreme overbought readings.

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 for a fifth day and into overbought readings.

  • 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 rising for a fifth day.

  • 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:

4550 is resistance

4525 is resistance

4500 is resistance

4490 is resistance

4475 is support

4450 is support

4400 is support

4370 is light support

4350 is light support

4300 is light support

4290 is light support

4270 is light support

4250 is good support

4225 is light support

4200 is good support

4175 is light support

4150 is light support

4100 is good support

 Stock Market Outlook for Tomorrow – Wed Oct 20 2021 

For Wednesday investors should prepare for a potential sideways or slightly higher day as almost all the indicators are flashing overbought readings.

Many stocks need time to consolidate the rapid gains made. However, any weakness will draw in those investors who missed the big rally and want to try to secure some gains. That means dips may not be very deep and will find ready buyers despite the market being overbought. Therefore, while the market is definitely overbought, buyers may not “allow it to take a rest on Wednesday” which means the outlook remains good for another day of gains and a higher close.

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