Stock Market Outlook for Wed Oct 4 2023 – Oversold – Still Bearish But Bounce Attempt Likely

Prior Trading Day Summary

On Tuesday the relentless climb of treasury yields pummeled stocks again. As well uncertainty over the House Speaker’s vote and ongoing UAW strike also weighed on investors.

The majority of stocks fell with a large percentage now trading below their respective 200 period moving averages. Bank stocks collapsed further with names like Bank Of America Stock (BAC) now at levels last seen in November 2020. Just as interesting was a slight rise in utility stocks.

The SPX dropped almost 59 points to end the day at 4229. It was the biggest one day drop in a week. Volume was 4 billion shares but most interesting were the number of new lows on New York reached 578, a number that almost always sees a bounce.

Trading volume on the NASDAQ was 4.8 billion. The NASDAQ fell 248 points ending at 13059. Volume was 4.8 billion shares traded with 567 stocks making new 52 week lows and 20 new highs.

Let’s review the closing technical indicators from Tue Oct 3 2023 to see what to expect for Wed Oct 4 2023.

Stock Market Outlook: SPX Closing Chart For Tue Oct 3 2023

The index closed below the 50, 21, 100 and 200 period moving averages which is bearish. Intraday the index fell sharply below the 200 period moving average and closed below it for a bearish signal. It also is an oversold signal.

The closing candlestick is bearish but indicates a bounce is likely. The problem of course is rising treasury yields.

The closing candlestick closed just above the Lower Bollinger Band which is bearish

The 21 and 50 period moving averages are now falling quickly and sharply. The 21 period will fall to the 100 this week which will be a major down signal when that happens.

The 200 period moving average is continuing to climb which is bullish. The 100 period moving average is falling which is bearish.

The Lower Bollinger Band is falling which is bearish. The Upper Bollinger Band is turning lower which is also bearish. The S&P chart is very bearish but also showing signals of being oversold.

Stock Market Outlook review of Tue Oct 3 2023

Stock Market Outlook: Technical Indicators Review

Stock Market Outlook for Wed Oct 4 2023 

There are not a lot of changes in the outlook for Wednesday. Stocks are very oversold. All the technical indicators are showing stocks are under selling pressure and ready to pop. The problem remains rising treasury yields and to a much lesser extent the ousting Tuesday of House Speaker McCarthy which leaves a degree of uncertainty for the House and continues to add to investor worries. All of this means any bounce will have trouble lasting more than a day or two. There is a good chance any bounce could last less than a single day.  At the same time, when it seems the worse is still to come, it is usually when the end of the selling is nearer, even temporarily.

For Wednesday the technical indicators are still showing very oversold but also advising caution. On Friday we get the September non-farm payroll number which could swing markets lower or try to bounce stocks. Note that support and resistance levels in the chart above are continuing to change. Good support is now down to 4250, 4200 and then 4150. A move of the market to 4200 is likely but also could assist a bounce.

Remember that the media loves this type of turmoil. Instead turn down the noise and build a watch list of stocks that are entering a fire sale. The lower they fall, the better the rally will be when it occurs. Until then make a list of quality companies that are of interest and remember that the SPX is down just 378 points for a drop of 8.2% as of Tuesday’s close at 4229. The media is making it sound like the SPX is down 20% or more. Some Bull market corrections can easily be as deep as 10% to 15%. What we are seeing, in my opinion, is a normalization of interest rates, an end to Fed quantitative easing and a realignment of stocks versus bonds. All of this, I think, will always have extremes before settling “down”.

Wednesday could start with the SPX dipping down to 4215 or even 4200 and then attempting a bounce. Treasury yields are at 16 year highs. That is extreme at this point and I won’t be surprised to see a dip lower or a stalling of interest rates at present levels. That could assist in a bounce attempt.

On Tuesday at the close I bought SPY calls as discussed in the SPY ETF Hedge Portfolio trade notes on Tuesday intraday. If stocks dip further at the open I may add in more calls as I still think a bounce is readying. If wrong I am willing to take a loss on the trade as it has been a terrific year for SPY ETF profits.

Potential Economic and Political Market Moving Events

The most important report this week is Friday’s non-farm payroll number. If the number is a bit softer than expected, stocks will rally. If it is stronger than estimated, stocks will dip lower again.

Wednesday:

8:15 ADP employment is expected to come in at 150,000

9:45 Final US Services PMI

10:00 Factory orders are expected to rise to 0.3% from -2.1%

10:00 ISM services are expected to drop to 53.6% from 54.5%. A move higher or too low would be harmful to stocks.

Tuesday:

10:00 Job Openings rose to 9.6 million from 8.8 million which some analysts expect show weakness in job growth

Monday:

9:45 Final manufacturing PMI was 49.8 which was higher than expected

10:00 ISM manufacturing was 49%, also higher than expected

10:00 Construction spending was 0.5% slightly less than expected