Stock Market Outlook for Aug 19 2020 – Overbought, Dips Likely But Still Bullish

Tuesday saw the S&P end the day at a new all-time closing high of 3389.78 and during the day the index made a new all-time high of 3395.06. This wiped out all the losses for the index from the Covid19 pandemic panic and signaled the end of the shortest bear market in stock market history. Let’s review the technical indicators at the close on Tuesday and see what they project for Wednesday.

Stock Market Outlook Chart Comments At The Close on Tue Aug 18 2020 

The closing candlestick on Tuesday is bearish for a third straight day. Note that while the Upper Bollinger Band continues to rise, the Lower Bollinger Band could easily cross above the 50 day which would give investors a down signal.

There are still 6 up signals and one down signal caused when the Lower Bollinger Band moving above the 100 day moving average back on July 27. At present the Lower Bollinger Band is trending just below the 50 day moving average and as explained above, it could easily move above the 50 day giving us a new bearish signal.

The 21, 50, 100 and 200 day moving averages and continuing to climb. The SPX chart is still more bullish than bearish but a number of the technical indicators are turning bearish.

Stock Market Outlook review of Tue Aug 18 2020

Stock Market Outlook: Technical Indicators Review:

Momentum: Momentum is falling but still 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 Monday Aug 3. On Tuesday the signal is weaker again and we could easily see a down signal on Wednesday or Thursday unless the index can jump higher and push the MACD signal higher.

• 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.

• 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 weak up signal in place and is still overbought.

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.

• 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 which indicates little change in prices is expected.

• 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:

3400 is resistance

3375 is resistance

3300 is resistance

3275 is support

3200 is support

3150 is support

3050 is support

3000 is support

2975 is light support

2950 is light support

2900 is light support

2860 is light support

2840 is light support

2800 is good support

2725 is light support

2700 is light support and marked a drop of 20.4%.

2500 was good support and marked a correction of 26.3%

2191 was the market low on March 23

 Stock Market Outlook for Tomorrow – Wed Aug 19 2020 

For Wednesday the chart is becoming more bearish and the technical indicators are showing more signs of weakness.

There are however enough signals to the upside that we could see another attempt to push still higher and probably reach 3400.

The technical indicators are showing the index as very overbought with limited to low strength to push much higher before a pullback is needed.

Wednesday will see dips but not the pullback the technical indicators are signaling. Instead Wednesday will see a higher close but plenty of volatility.

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