Friday saw stocks tumble still further with the S&P almost reaching a 20% decline from its 52 week high as it fell to 3810. That drop brought in buyers who sent stocks higher, to close at 3901, once again retaking the important 3900 technical support level.

The NASDAQ lost 33 points ending the day at 11354.

The bounce back from a new low on Friday could signal a third bounce attempt for Monday but Friday’s bounce was purely technical which could make Monday’s bounce problematic.

Let’s review the closing technical indicators from Friday to see what potential there is for a rally on Monday.

Stock Market Outlook Chart Comments At The Close on Fri May 20 2022 

On Friday the closing candlestick left behind a long shadow. This signals that buyers pushed back at sellers. This leaves a bearish bounce candlestick for Monday which means there is some chance for another bounce on Monday, or at least some of Monday.

The Upper Bollinger Band is falling sharply and is on the verge of falling below the 200 and 100 day moving averages. This is bearish and advises there is still more risk to the downside.

The Lower Bollinger Band is sill trying to turn sideways but continues to slip lower.

All moving averages are bearish and there was a new sell signal on Monday May 16 as the 100 day moving average fell below the 200 day. That means the 200 day moving average is now leading the market. This is bearish and usually signals more selling to come.

All the major moving averages are falling including the 200 day. The 21 day is still falling rapidly.

The chart is 95% bearish for Monday. A bearish signal this high warns investors that any bounce on Monday should be viewed with suspicion and profits should be taken where available.

Stock Market Outlook review of Fri May 20 2022

Stock Market Outlook: Technical Indicators Review:

Momentum: Momentum is rising and negative. With momentum still strongly negative any bounce will have trouble with follow through.

• Settings: For momentum I use a 10 period when studying market direction.

MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal Friday April 8. On Thursday  the down signal gained to the bearish side as did the MACD histogram. They continue to point to more selling ahead.

• 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 and negative.

• 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 and is heading back to oversold signals.

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 and on the verge of oversold readings.

• 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 rising

• 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:

4400 is resistance

4370 is light support

4350 is light resistance

4300 is light resistance

4290 is light resistance

4270 is light resistance

4250 is resistance

4225 is light resistance

4200 is light resistance

4150 is light resistance

4100 is light resistance

4050 is light resistance

4025 is light support

4000 was good support

3975 is light support and is a decline of 17.5%

3900 is good support and is a decline of 19%

3850 is good support and is a decline of 20%

3600 is good support at is a decline of 25%

 Stock Market Outlook for Tomorrow – Mon May 23 2022

For Monday May 23, investors are looking at a mixed day. The chance of a bounce attempt is high. The technical indicators are advising that if there is a bounce, it will not yet hold and it should be used for profit-taking. A mixed day lies ahead for the start of the 4th week of May.

Potential Market Moving Events

There are a number of market moving events this week including on Wednesday, Thursday and Friday.

Monday:

No events

Tuesday:

10:00 New Home Sales

Wednesday:

8:30 Durable Goods Orders

2:00 FOMC minutes (often moves markets)

Thursday:

8:30 Weekly Initial Unemployment Insurance Claims

10:00 Pending Home Sales

Friday:

8:30 PCE Inflation / core and year-over-year

8:30 Real Disposable Income

10:00 Consumer Sentiment Index from UofM

10:00 5 Year Inflation Expectations

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