Monday saw stocks continue the oversold bounce that started on Friday afternoon when the indexes made new lows.
The rally was a lull in what has been almost relentless selling over the past several weeks. The gains aside from the Dow however, we not inspiring.
The S&P rose 72 points for a 1.8% gain to close at 3973. The past two large rallies in May in the SPX were stronger on more volume and resulted in a stronger gain.
The NASDAQ rose 180 points for a 1.5% gain to close at 11,535. There have been 8 up days in May for the NASDAQ. Four of those rallies were much stronger than Monday’s rally, on more volume and with broader stock participation.
So while the rally on Monday was great to see, it was obviously a continuation of the rally from Friday. Tuesday and Wednesday will give a clearer picture what investors should expect this week.
Let’s review the closing technical indicators from Monday’s rally to see what potential there is for upside to continue Tuesday.
Stock Market Outlook Chart Comments At The Close on Mon May 23 2022
On Monday the closing candlestick is signaling a bearish bounce. This could last another day but it needs to gain more traction and wider volume to succeed for a third or even fourth day.
The Upper Bollinger Band is falling sharply and is now below both 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. It needs to turn sideways. Monday’s rally changed none of the chart technical indicators.
The chart is 95% bearish for Tuesday. A bearish signal this high warns investors that any bounce on Tuesday may not hold even through the day.
Stock Market Outlook review of Mon May 23 2022
Stock Market Outlook: Technical Indicators Review:
Momentum: Momentum is rising and negative. Momentum could turn positive for the first time since early April if the index rallies on Tuesday.
- 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 Monday the down signal was cut by more than half as the MACD histogram is ready to turn positive.
- 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 and positive.
- 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 heading out of 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 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 rising for a second day.
- 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 – Tue May 24 2022
For Tue May 24 2022 the technical indicators are advising that the rally had some strength and could try to carry into Tuesday. The up signals are not strong enough to suggest the rally may last longer and indeed they are low enough that might suggest if there is a rally continuation on Tuesday, it may not last even Tuesday.
Overall the outlook is that Monday saw a nice bounce but the likelihood that it signaled the end of selling for awhile is slim. The outlook remains bearish heading into Tuesday.
If there is a rally on Tuesday I will be watching for a topping action to buy SPY puts out to Jun 10 expiry.
Potential Market Moving Events
There are a number of market moving events this week including on Wednesday, Thursday and Friday.
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
Stock Market Outlook Archives
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
Morning Investing Strategy Notes for Tue Nov 5 2024
Stock Market Outlook for Tue Nov 5 2024 – Choppy and Weakness Ahead Of Election
