For Thursday the market was expected to be weak but a positive close was also anticipated. Instead stocks fell deeper than thought as they plunged through 2110 to a low of 2107.73 by lunch hour. They tried to come back into the close but all three major indexes closed lower on the day. Many reasons were given but the prime reasons were the overbought nature of the market itself and the inability of the market to break resistance at 2120. The concern over interest rates moving higher in July is starting to grab the attention of investors. As well Britain votes on June 23 whether to leave the EU and polls show the results are too close to predict with certainty. Other reasons include comments from George Soros on leaving the stock market and focusing on gold. These comments were echoed by Carl Icahn and despite the poor track record of both men over the past couple of years, investors still pay attention and worry they may be right. Global stocks also declined on Thursday which set the markets up for a weak opening. Oil and most commodities pulled back as the US dollar rallied slightly. All of these items weighed on investors on Thursday and will probably impact Friday as well.
S&P Index Close
Just a day later and investor sentiment shifted which sent the S&P down 3.64 points to close at 2115.48.
Dow Jones Index Close
The Dow Jones opened lower tried to rally and then fell even lower into the lunch hour. The afternoon saw the Dow push back but was unable to close back above 18000. It closed down 19.86 points at 17,985.19.
NASDAQ Index Close
The NASDAQ also opened lower, rallied and then fell into the start of the lunch hour. It rallied back but still closed down 16.03 points to 4958.62.
Stock Market Outlook – Technical Indicators At The Close
Stock Market Outlook – June 9 2016
Stock Market Outlook: Chart Comments:
The S&P closed below the Upper Bollinger Band and well above all the major moving averages. The closing candlestick is bearish for Friday. This adds to the prior 3 bearish closing candlesticks from Friday last week and Monday and Tuesday this week. The index dropped back from following the Upper Bollinger Band today. This is the first move backing off from the Upper Bollinger Band since May 24.
The SPX continues to be led by the 50 day and then the 100 day both of which are rising which is an up signal for stocks. Overall the market is now set up as it should be with the 50 day, following by the 100 day followed by the 200 day.
Stock Market Outlook: Support and Resistance Levels:
These are the present support and resistance levels. These levels have not changed since January 2015.
2100 is still resistance and has not been decisively broken. We will need a couple more days of activity above 2100 before it will become support.
2075 is light support. Below that is 2050 which is light support.
There is light support at 2025.
Better support is at 2000.
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 as is 1920. 1900 is more symbolic than anything else.
1870 is support. 1840 continues to be support. The 1820 level is light support. The strongest support level is at 1800.
1775 and 1750 are both 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 from the all-time high of 2134.72. This would be the biggest correction since the plunge in 2011 of a 20% pullback. A pullback to 1750 from the all-time high would be a drop of 384 points for a decline of 18%. A pull-back of that size would definitely stun investors and bring to question whether the bull market which started in 2009 is finished. From 1750 it is an easy slide to 1600 which was near the market top in 2007.
Stock Market Outlook Technical Signals
Momentum: For momentum I use a 10 period when studying market direction. Momentum is positive but is falling.
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 May 25. The strength of the buy signal was unchanged again on Thursday. This continues to be a concern. The buy signal should be growing. It is not.
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, overbought and falling.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is positive and falling which supports the belief the rally is running out of steam.
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 neutral for a second day and is extremely 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 I have it set for daily views. The Fast Stochastic is neutral and also extremely overbought.
Stock Market Outlook for Tomorrow – Friday Jun 10 2016
For Friday the technical indicators are showing further signs of weakness but not solid sell signals. The two stochastic indicators, which are often the first to signal down for stocks, are neutral on the market although they are very overbought. All the other technical signals have lost strength but are still positive.
The biggest concern is still MACD which does not grow in value despite the market climb. This almost always signals that a rally is not to be trusted and indeed, many investors do not trust this rally.
The weakness means the morning could open down again, but the market may try to push back positive toward the close.
Friday is a tough call. Instincts advise the market will close more negative than Thursday. However the technical indicators are advising that while there is weakness, the underlying direction remains higher. Therefore we could see a lower close on Friday but the bias could still remain up for next week.
For Friday then, watch for a morning drop, and a rally attempt in the afternoon to turn positive that could end with a slightly negative close as a shift is underway to more weakness.
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