In my stock market outlook Thursday night I indicated that there was a good chance the overbought condition of the market would create some weakness on Friday and a dip. I was expecting a negative close. Not a deep drop but a negative one. I then wrote that if the market closed at 2050, we should expect a drop on Monday.
On Friday stocks did close just below 2050 so let’s look at the technical outlook for Monday to see where stocks may head.
Stock Market Outlook – Advance Decline Numbers
Volume was the heaviest of the week on Friday as the S&P pushed to the 2050 level. 6.51 billion shares traded an increase of almost 2 billion shares from Thursday.
It was a heavy day for the markets and by the close 58% of the volume was being traded to the downside. New highs though rose to 143 while new lows were just 9.
This is the best showing for new 52 week highs in months and should assist even in weakness from being overbought, in eventually pushing the market through 50 to 2080.
59% of all stocks on New York were rising by the close on Friday.
Stock Market Outlook – Technical Indicators At The Close
Stock Market Outlook from Mar 18 2016
Stock Market Outlook: Chart Comments:
The S&P closed above the 200 day moving average again on Friday and reached resistance at 2050. Volume was very high on Friday as the index pushed to retake the 2050 level. That means there were lots of sellers as well as buyers. Many investors who have been holding since the market pullback, are getting out at this level. That could stall the market advance.
The closing candlestick was neutral on the move up on Friday, but it is continuing to push against the Upper Bollinger Band which is a bullish signal.
The 20 day simple moving average (SMA) crossed up and above the 100 day which is another buy signal on the market.
The Upper Bollinger Band is still turning higher and the 50 day simple moving average (SMA) is turning back up as well.
The Lower Bollinger Band is moving higher and will shortly cross over and above the 50 day moving average which will be another bullish signal for the index.
The 200 day is still leading the market followed by the 100 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 resistance.
2075 was light support and is now resistance. Below that is 2050 which is resistance.
Light 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 and moving sideways. While it is not really supporting the rally, it is also not falling back as the advance continues which is somewhat of a bullish sign.
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 Feb 16 which continued to be weak on Friday.
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 rising.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is positive and higher. The signal at the close was rise to 6.87. This is still a high reading which is indicative of an overbought market. However the rise in the Rate Of Change on Friday indicates that prices are starting to rise again for equities.
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 to up for stocks 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 it is set for daily. The Fast Stochastic is signaling up for stocks and is extremely overbought.
Stock Market Outlook for Tomorrow – Monday Mar 21 2016
All the technical indicators are still positive for the stock market outlook. The same problem remains, overbought. A market can remain overbought for quite some time but eventually it has to pullback to regroup. The huge volume on Friday resulted in an advance of 8.99 points. Volume this large should have produced a larger gain. That means a lot of the volume was selling as the market punched through to 2050.
I have waited for a pullback for a couple of days now and the market has not co-operated. Instead it has continued to advance. The huge volume on Friday though indicates to me that the overbought market should pullback on Monday.
I am not expecting a huge drop, just weakness as the market tries to push through sellers to reach 2080 sometime this week. Monday though looks like stocks will either close negative or just slightly higher as sellers continue to provide stiff resistance to the advance from 2050.
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