With the 10 year treasury rising to 1.5%, the highest level in over a year (rates were 0.5% in the fall) investors bailed on stocks for a second day. While the close for the S&P was not as low as we saw on Tuesday when the S&P almost touched 3800, it was actually far worse as rallied were small and selling was relentless. On Tuesday the index plunged but then a rally reversed the selling and on Wednesday the index recovered all the losses from the start of the week. At the open the S&P looked like it might take a small dip and then try to climb higher but with investors scared of interest rates, the jump to 1.5% was too unsettling. It’s not the rate rise itself that disturbed, it’s the unknown lying ahead. Most analysts and investors believe rising rates will end this bull market. Rates rising to 2% or 3% would definitely impact stocks negative.
Let’s look at the technical indicators from the close on Thursday to see what, if anything, they can tell us for Friday.
Stock Market Outlook Chart Comments At The Close on Thu Feb 25 2021
The S&P closed at 3829 a drop of 2.45% for a loss of 96 points. The closing candlestick is negative for Friday. It points to the potential for a bounce but indicated the index will break below the 50 day moving average.
Intraday the index almost reached the 50 day around 3:40 which resulted in a very small bounce.
The Upper Bollinger Band is still climbing. The Lower Bollinger Band is moving sideways. These are bullish signals for the Bollinger Bands but it will only take more selling on Friday to turn them bearish.
The 21 day moving average is dipping slightly. The 200, 100 and 50 day moving averages are still climbing. Overall the market is back to weakness and the break of the 21 day again on Thursday is signaling the index will fall to the 100 day next which is around 3680 at present. That’s a drop of 150 points or 3.9%.
Stock Market Outlook review of Thu Feb 25 2021
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is falling sharply and negative.
- Settings: For momentum I use a 10 period when studying market direction.
MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Mon Feb 23 2021. On Thursday the down signal gained a lot of strength. More downside should be expected.
- 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.
- 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
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.
- 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.
- 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:
4000 is resistance
3900 is resistance
3850 is support.
3800 is support.
3750 is support
3700 is light support
3680 is light support – The 100 day moving average is at this valuation.
3600 is strong support
3550 is support
3500 is strong support
3450 is support. The 200 day moving average is just above this valuation. A drop this low would represent an 11% correction.
Stock Market Outlook for Tomorrow – Fri Feb 26 2021
The closing candlestick indicates there is a chance for a bounce before more selling but that is unlikely based on the other technical indicators.
All the indicators are pointing to lower prices for Friday. The big concern will be interest rates on Friday and next week. If the 10 year Treasury climbs to 1.75% we will see more selling and at 2% the index will probably break the 100 day and head lower.
Overall caution is definitely warranted for the next several days at least.
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