The market direction outlook ro Friday was two-fold – the unemployment numbers and then a rebound before more selling entered the market. The unemployment numbers were such that it shows that the economy is mending and after 6 months of plus 200,000 numbers the unemployment rate actually moved up as more people in the non-participating segment of the economy are back looking for work. The numbers basically told investors that higher interest rates are coming. The jobs numbers this morning were “good enough to sell”. Let’s look at today’s morning action to see where the afternoon may be headed.
S&P Market Direction Intraday
The one minute intraday chart for August 1 2014 shows the disappointing bounce this morning. I sent out a tweet shortly after 10:00 indicating I had bought into the market direction portfolio again for more downside moves. I also picked up SPY PUT Options.
You can see in the intraday that the market direction bounced around the 1930 level until around 11:00 AM. By then, investors seemed to have decided that higher interest rates will come sooner rather than later. The morning was spent mulling over the unemployment report but with yesterday’s Weekly Initial Unemployment Insurance Claims showing higher wages and today’s monthly unemployment numbers showing more people looking for work from the non-participating sector, investors are convinced that the Fed will have to act and raise rates.
This started more selling which as we all know, draws in more investors who keep on selling. This pushed the market down to 1919 which as I have discussed each evening, is light support but still, just as we saw with 1930, it is enough to stall selling for perhaps as much as a day.
Outlook Into The Close
You can see the importance of the 1919 level. It is the “jumping off” point for the rally that started at the beginning of June and held until now. There should be enough strength here to hold the market for the rest of the day. Volume this morning is lighter than yesterday’s morning which is another indication of sellers drying up at the present time.
Today’s move lower down to 1919 has now placed the S&P right at the 100 day exponential moving average (EMA). If 1919 fails to hold the next drop should end around the 1870 to 1880 area which is very strong support. This would mark another 2.5% drop or roughly 49 points in the S&P.
The 1870 level is right near the 200 day EMA. A correction down to 1870 is not out of the question but my outlook back in early June was for the market direction to fall back to the 1919 to 1870 level which would be a good test for support and place many stocks back in fair value.
I am not expecting the market today to fall much below 1919 if at all. The bounce this morning was anemic. I think a bigger bounce has yet to come. For all my “down trades” like the Spy Put Option and Market Direction Portfolio I am using very tight stops. I want to lock in profits from today’s move lower just as I did yesterday’s move lower and then buy more downside on the real bounce which I think is still going to happen but probably Monday or Tuesday of next week.
Today look for stocks to hang in around 1918 to 1920 but if they fall further, they will stop at the next support level. Then I can reassess at that time.
Remember this is not the start of a new bear market. It is readjustment for higher rates. With the market so heavily overbought and with so many stocks overvalued, we are bound to see this kind of pullback to support. Let’s see how the day ends.
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