On Tuesday after the close, I wrote that the Monday and Tuesday rally were overdone and markets were extremely overbought. Wednesday we saw stocks give back some of the gains from those two days but today we saw what can happen to an extremely overbought market, as the rally from Monday and Tuesday have now been given back.
The S&P lost 72 points to close at 4530 and the NASDAQ lost 221 points closing at 14,220.
On Friday last week the S&P was at 4543 and the NASDAQ closed the week at 14169. You can see that after the two days of selling, the indexes are back to where they were before markets become extremely overbought.
While much of Friday, certainly the morning, will be all about the March Unemployment Report, let’s review the technical indicators from Thursday close on the S&P to see what they can tell us about Friday and the past two days of selling.
Stock Market Outlook Chart Comments At The Close on Thu Mar 31 2022
The SPX index closed down below the 4600 level but above the 4500 level. The closing candlestick is bearish although often we can expect a bit of a bounce after a fall of 70 or more points in the index. The candlestick closed the day just below where Monday opened, which basically resets the week and leaves stocks no longer overbought.
The Upper Bollinger Band has turned sideways after a second day of selling but the Lower Bollinger Band is still turning lower. The bands are still bullish.
The 21 day moving average is moving higher which is bullish. The 200 day moving average is also back at the 4400 level which is bullish. If the index continues to stay above the moving averages, the 50 day moving average will not fall below the 200 day but instead will climb higher. This would be a major up signal if the 50 day were to cross above the 100 day this week. The 100 day moving average has not fallen further but is trending sideways. These are bullish signs. You can see that the 50, 200 and 21 day moving averages have all converged. We will have to see what the next signal is but for now, they still look bullish.
The SPX still has 4 down signals in place but if the 21 day crosses above the 200 day it will be a major up signal supporting the bulls.
The chart is a bit more bearish for Friday although the signals now indicate the overbought markets have room to the upside again. The chart’s outlook though is negative for Friday’s close but that can easily change depending on the March unemployment report.
Stock Market Outlook review of Thu Mar 31 2022
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling and positive. Momentum dipped back on Wednesday for a third straight day of declines.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued an up signal Wed Mar 16 2022. On Thursday both the MACD up signal and the histogram have much lower readings than we saw on prior days. Friday’s closing signal will be important for the start of next week.
- 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 falling sharply and no longer signals 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 a stronger down signal in place and is still signaling 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 falling sharply and no longer overbought.
- 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 investors should not expect wider price movements on Friday, either up or down.
- 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:
4650 is resistance
4640 is resistance
4625 is resistance
4600 is strong resistance
4590 is resistance
4575 is light support
4560 is support
4550 is light support
4525 is light support
4500 is support
4490 is light support
4475 is light support
4450 is light support
4400 is support
4370 is light support
4350 is light support.
4300 is good support
Stock Market Outlook for Tomorrow – Fri Apr 1 2022
For Friday the market direction, certainly from the open, will be about the March jobs report and if inflationary worries are become stronger or are too over blown. Certainly the inflation numbers on Thursday and the ADP numbers yesterday, are supportive of the scenario that inflation is climbing and should be a concern. The March jobs numbers may add more fuel to that fire. If so then stocks will fall lower.
Meanwhile you can see from the technical indicators and from the Support and Resistance levels in the chart above, that the market was way overbought starting late Friday and definitely Monday and Tuesday. With the two-day sell-off the S&P is back into support levels with 4500 being very good support. We could see 4500 touched on Friday or broken, depending on the March jobs numbers. If it breaks there is a good chance the 4475 level could be retested next.
Potential Market Moving Events
I will keep these comments up this week.
Friday:
Friday is the big one – the March nonfarm payroll numbers and unemployment rate and average hourly earnings. This is often a market moving event which can last a week or longer. I put together a SPY ETF trade on Thursday ahead of those numbers and posted it for Members on Thursday.
On Friday at 9:05 Chicago Fed President Evans is speaking before markets open. At 9:45 we get the Market Manufacturing PMI. At 10:00 we get the ISM manufacturing index and construction spending. At no set time in the morning we should get motor vehicle sales which are estimated to reach 14.1 million. This could be a bullish signal but the big one is the March unemployment report. It will overshadow all the other Friday reports.
Stock Market Outlook Archives
Stock Market Outlook for Fri Nov 15 2024 – Choppy With Bias Lower
Stock Market Outlook for Thu Nov 14 2024 – Choppy – Dips Possible But Higher Close
Morning Investing Strategy Notes for Thu Nov 14 2024
Morning Investing Strategy Notes for Wed Nov 13 2024
Stock Market Outlook for Wed Nov 13 2024 – Choppy Trading Bias Lower
Morning Investing Strategy Notes for Tue Nov 12 2024
Stock Market Outlook for Tue Nov 12 2024 – Overbought – Dips Likely But Bullish
Morning Investing Strategy Notes for Mon Nov 11 2024
Stock Market Outlook for Mon Nov 11 2024 – Overbought – Higher Still
Morning Investing Strategy Notes for Fri Nov 8 2024
Stock Market Outlook for Fri Nov 8 2024 – Overbought – Dips Likely But Higher Close
Morning Investing Strategy Notes for Thu Nov 7 2024
Stock Market Outlook for Thu Nov 7 2024 – All About The Fed – Higher
Morning Investing Strategy Notes for Wed Nov 6 2024
Stock Market Outlook for Wed Nov 6 2024 – Election Rally Continues
