The biggest drag on the markets on Tuesday was oil with prices that continued to decline. Today oil ended at a two month low thanks to persistent over supplies of oil. Investors used oil along with a decline in US orders for business equipment as excuses to sell stocks on the back of markets not climbing but instead falling further.
Two days of declines and the S&P fell back below the support level of 2075 to close today at 2065.89. Investors are nervous and Apple Stock’s earnings released tonight after hours seemed to bounce the stock at first but by the time the after hours session had ended, Apple Stock was moving lower. This may impact stocks for Wednesday.
Market Direction Closings For Oct 27 2015
At the end of the day the indexes closed modestly lower. The S&P closed at 2,065.89 down 5.29. The DOW closed at 17,581.43 down 41.62. The NASDAQ closed at 5,030.15 down 4.56.
Advance Decline Numbers
By the end of the day on Tuesday, volume was moved to 4.2 billion which over a billion shares traded in the last hour. New lows rose though to 108 and new highs tumbled to 38. This is the second day of strength for new lows. 70% of all trades were moving lower and on New York 72% of all stocks were declining. The NASDAQ had 1.96 billion shares traded and new lows also rose. 115 new lows were recorded on Tuesday and 54 new highs. 69% of all issues on the NASDAQ were moving lower.
Market Direction Technical Indicators At The Close of Oct 27 2015
SPX Market Direction Technical Analysis for Oct 27 2015
Stock Chart Comments:
The S&P closed above the 200 day moving average for the fourth time today but the open and close were weak. The S&P closed below the 2075 support level but still above the open from last Friday. The 20 day simple moving average (SMA) is continuing to rise after signaling market direction up on Oct 22 when it crossed over and above the 50 day moving average. The 200 day though is still leading the market followed by the 100 day and then the 50 day longer-term moving averages. None of these averages look ready to move back to what would be considered the norm of the 50 day leading the market higher. That is still not happening..
Support and Resistance Levels:
These are the present support and resistance levels.
2100 was light support. Stocks have been unable to stay above this level and push higher on numerous occasions. It remains resistance.
2075 is light support. Below that is 2050 which is light support. Stronger support is at 2000 which had repeatedly held the market up throughout each pullback in January and February but failed under the waves of selling in the last correction. Stocks continue to have trouble holding the 2000 level.
Weak support is at 1970 while stronger support is at 1956 and technically it is more important than 1970 for the market. 1940 is light support. 1920 is now light support. 1900 is more symbolic than anything else.
1870 and 1840 are both levels with strong enough support to delay the market falling and should see a sideways action attempt while investors decide whether to sell or buy. So far 1870 has held the market up better than any of the other support levels aside from 2000 which held the market up for months before the collapse in August.
The other two support levels are 1775 and 1750. I have explained that these two are critical support for the present bull market. While 1775 is important it is 1750 that is the bottom line.
A break of 1750 would mark a severe correction of 384.72 points or 18% from the all-time high of 2134.72. This would be the biggest correction since April 2012. A pull-back of that size would definitely stun investors and bring to question whether the bull market is finished.
Momentum: For momentum I use a 10 period when studying market direction. Momentum is positive and rising.
MACD Histogram: For MACD Histogram, I am using the Fast Points set at 13, Slow Points at 26 and Smoothing at 9. MACD (Moving Averages Convergence / Divergence) issued a buy signal on Friday Oct 2. That signal has lost strength and although the signal lines look like they are rising, which they are, the strength of the signals is weakening as readings are pointing more sideways than up for the overall direction of the S&P.
Ultimate Oscillator: 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. The Ultimate Oscillator is positive and moving sideways. It is very overbought.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is positive but is now at a reading of 9.78 which almost always signals a reverse day coming up. This is too high a signal for the market to keep advancing. There almost always is a pullback of some kind when the signal is this high.
Slow Stochastic: 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. The Slow Stochastic is pointing down for stocks and is still overbought.
Fast Stochastic: For the Fast Stochastic I use the K period of 20 and D period of 5. These are not default settings but settings I set for the 1 to 3 month S&P 500 chart when it is set for daily. The Fast Stochastic is also pointing down for stocks and it too is very overbought.
Market Direction Outlook for Oct 28 2015
The market remains very overbought despite the past two days of lower movements. The technical indicators are becoming split with 2 signaling lower for stocks, 4 signaling very overbought and 3 showing signals that are usually followed by a move lower.
The earnings from Apple at first jumped the stock in the after hours but then turned lower. As well Wednesday afternoon at 2:00 PM we get more Fed minutes on interest rates and often these have been known to create higher volatility. Almost everyone has determined that the Fed will not raise rates this year and while it might appear obvious to us that rates should not increase, any move now by the Fed to raise rates would stun the market. In other words a rate increase in 2015 is not “baked into stocks”.
Watch for the market to move lower in the morning as Apple Stock and now terrible results from Twitter should keep the market indecisive and nervous. I am then looking for the market to stall into the lunch hour. Then I am expecting the Fed decision to either jump start the rally again or push stocks lower. I am on the side of a jump-start but you never know with the Fed. So for Wednesday we have a “mixed bag” as we are Back To The Fed.
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