Weekly Market Outlook – No Gas Left in the Tank
Weekly Market Outlook – October 13th, 2019
The market left behind a measurable recovery effort last week, but not an ideal one. Stocks are still dangerously close to slipping into a more severe downtrend. And, the odds of the bearish nudge that could put that pullback into motion are now a little higher than they were as of Thursday.
We’ll start this week’s analysis with a look at the daily chart of the NASDAQ Composite rather than the S&P 500, as it’s proven a key line is acting as support. That’s the 200-day moving average line, plotted in white. The composite only had to kiss it a couple of weeks ago (highlighted) to rekindle the rally.
NASDAQ Composite Daily Chart
Source: TradeStation
Problem: Traders were stoked enough on Friday to leave behind a pretty big bullish gap that’s now aching to be closed. And, though the NASDAQ closed up 1.34%, it peeled back from what was an intraday gain of 2.07%. Investors changed their mind pretty quickly, leaving the composite near its low for the day. The upside-down hammer shape (also called a gravestone doji) from Friday is a subtle clue of a pivot out of bullishness into bearishness.
It’s possible the bulls could fade away just enough to close the gap and still remain above that critical 200-day moving average line, currently at 7757. In fact, the gap could be closed without the NASDAQ Composite getting anywhere near the 200-day line. That’s going to take a little — or maybe even a lot — of extra effort though.
Take a step back and look at the weekly chart of the NASDAQ Composite. It’s losing steam. The distance between consecutive higher highs and higher lows is getting smaller, and we didn’t even see a higher high with October’s peak. Notice that both MACD lines are now trending lower as well.
NASDAQ Composite Weekly Chart
Source: TradeStation
The same basic story for the S&P 500, though with one added detail. That is, all the lows in August as well as the low from earlier this month line up, and the 200-day moving average line is about to intercept that line at 2863.
S&P 500 Daily Chart
Source: TradeNavigator
Also notice on the daily chart of the S&P 500 as well as the NASDAQ’s daily chart that the shorter-term moving averages are moving into the longer-term ones.
This is vexing, by design. Stocks are technically on the fence, and to make matters more complicated, this is the time of year when stocks are searching for a bottom to kickstart the usual year-end bullishness. We’re behind schedule, or we may be positioning to buck the normal path this year.
Worse, the third year of a Presidential term tends to be weak through the middle of November and then leads into a strong December. There’s still time and room for that to happen, particularly now that the upside of any potential trade deal has played out. There won’t likely be another trade summit until next year either, giving the bulls nothing to latch onto. The tank is empty.
That means we have to wait to see how this plays out, and watch the key moving averages closely. If the rally is to remain in place, it will have to take a small step back first… this week.
