Tuesday’s market was highly volatile with the VIX Index at one point rising to $24.66 before falling to close back at $20.18 for a gain of 5.5% on the day. Stocks had big swings with the S&P briefly breaking below 2700 in the early morning and then a rally pushing the index all the way back to 2753 before it closed at 2740.
Stock Market Outlook Chart Comments At The Close on Tue Oct 23 2018
The index closed below the 200 day moving average in a dramatic reversal. This was the lowest drop today of the correction but not the lowest close which is bullish.
The sell signal from the 21 day falling below the 50 day gathered momentum on Tuesday and could reach the 100 day within a couple of days for a second major sell signal.
The candlestick is bearish for Wednesday but also often signals a bounce first before more selling.
All the major moving averages are turning lower which is bearish for the market at present.
The Lower Bollinger Band and Upper Bollinger Band are also falling indicating the index is going to move lower. Note how the S&P today at the low reached the Lower Bollinger Band and bounced off it.
Stock Market Outlook: Technical Indicators Review:
All indicators continue to signal lower as of Monday’s close.
Momentum: Momentum is negative and still falling. It is at levels often seen where there is a bounce.
- 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 was weaker again on Tuesday but nonetheless it remains a very strong down signal for Wednesday. It is though oversold and at levels where a bounce would not be surprising.
- 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 only slightly. There is limited conviction to the downside from the Ultimate Oscillator. Often is pattern is followed by a bounce.
- 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 for Wednesday for the third straight day. However the signal is much weaker than prior ones. We could see a bounce.
- 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 turned lower on Tuesday and is now oversold. We could see a bounce shortly.
- 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 at levels where a bounce is anticipated.
- 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 resistance
2745 to 2750 are 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 of 641 points as a drop to this level would be 21% and just 5% away from a bear market signal.
Stock Market Outlook for Tomorrow – Wed Oct 24 2018
The indicators remain bearish but there are, as you have read, many signals advising the market may try to bounce.
Judging when a market may bounce is never easy in a correction but there are multiple signals this evening after today’s dramatic reversal.
There will be selling on Wednesday and the S&P could even slip to 2725 or worse, 2710, but a break of 2700 seems unlikely following Tuesday’s bounce back. Instead there is a good chance for the S&P to end the day flat or possibly even positive.
The correction is not over but there are a number of signals advising investors that the market is trying to bottom. As long as the 100 day is not broken by the 21 and then the 50 day moving averages falling below it, the correction could be over sometime in early November.
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