The Market Direction Outlook for the S&P for Friday Apr 17 hinged on the doji-cross candlestick from Thursday’s close. Normally this signals a bearish trend for one to two days. The outlook then was mixed with a cautious stance but in general the rate of change advised that a change was possibly at hand but most of the other technical indicators were generally positive for stocks. In the end the doji-cross and rate of change were correct and the market suffered a steep loss.
Sideways Markets
Part of the problem the market faced was the inability to move forward. Once the market direction started to turn sideways on Apr 10, investors became worried again that the recent top could not be broken and stocks might move back down again. This has become the pattern and sometimes these become self-fulfilling. Certainly on Friday, once selling started, investors were back, taking profits and punishing stocks yet again. Sideways markets can be highly profitable for traders and that is what we are seeing as investors buy stocks on dips but unload them at even a hint of trouble.
Revenue Is The Main Culprit
This continual whipsaws in the market since December are pushing more and more investors to the sidelines. Even experienced investors are not only advising caution but are also moving to the sidelines. The biggest problem facing the S&P is the lack of continued revenue growth. If revenue was still growing stocks would be moving higher. Instead revenues are down about two percent on average for the S&P in the last quarter among those companies that have so far reported. While certainly not a bad performance, the focus is on the fact that they are not growing and that has investors worried. There are many other factors including concern about when interest rates will rise, a high US Dollar, Greece, oil prices, declining strength in China’s economy and more. But in general at the present time improved revenue numbers would definitely help the market and it is just not happening.
Advance Decline for Apr 17 2015
By the close on Friday New York saw 3.6 billion shares traded with 80 percent of all trades moving to the downside. But new lows failed to point to further big declines to come as just 15 stocks made new 52 week lows. Only 21 stocks made new 52 week highs. While the day definitely belonged to the bears, there is still no signal that the market has topped out and the next move is deeply lower. Stocks still are signaling that the trading range remains.
Market Direction Closings For Apr 17 2015
The S&P closed at 2081.18 down 23.81. The Dow closed at 17,826.30 down 279.47 points. The NASDAQ closed at 4931.81 down 75.98.
Market Direction Technical Indicators At The Close of Apr 17 2015
Let’s review the market direction technical indicators at the close of Apr 17 2015 on the S&P 500 and view the market direction outlook for Apr 20 2015.
Market Direction Technical Analysis for Apr 17 2015
Stock Chart Comments:
The doji-cross candlestick on Thursday played out on Friday with a large down move. Normally this will carry on for a second day which means Monday will be weak. All the indexes closed off their lows on Friday but lots of technical damage was done to the markets. The S&P has no support below 2100 until it reaches 2075 and on Friday 2075 held the market up and was tested several times. 2075 is light support though and further testing on Monday will most likely break through.
On Friday the 20 day simple moving average (SMA) fell below the 50 day simple moving average (SMA) issuing a sell signal on the S&P. The S&P closed below the 50 day SMA which means the next stop will be the 100 day exponential moving average (EMA) around 2060. The next support level is 2050 and it too is light support.
Support and Resistance Levels:
These are the present support and resistance levels.
2100 was very light support and is now resistance. Stocks will have to stay above it to change it back to support.
2075 is light support. Below that is 2050 which is also light support. Stronger support is at 2000 which has repeatedly held the market up throughout each pullback in January and February.
Weak support is at 1970. Stronger support is at 1956.
1870 and 1840 are both levels with strong enough support to delay the market falling and should see a sideways action attempt while investors decide whether to sell or buy.
The other two support levels are 1775 and 1750. I have explained that these two are 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 most recent high. This would be the biggest correction since April 2012. A pull-back of that size would definitely stun investors and bring to question whether the bull market is finished.
Momentum: For Momentum I am using the 10 period. Momentum is positive but falling rapidly.
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 on Apr 9 and that signal declined on Friday but remains in effect.
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 negative and falling.
Rate of Change: Rate Of Change is set for a 21 period. On Thursday I indicated that the Rate Of Change was “not signaling for the rally to continue”. By the close on Friday it is signaling lower for stocks.
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 pointing down for stocks for the new week and has a sell signal in place.
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 also pointing down for stocks and it too has a strong sell signal in place.
Market Direction Outlook for Apr 20 2015
The doji-cross candlestick at the close of the day on Friday is usually bearish for two days if the first day sees selling. That means Monday most likely will be lower. As well, sell signals were generated on Friday from the 20 day simple moving average (SMA), the Rate Of Change, Slow Stochastic, Fast Stochastic, and Ultimate Oscillator. The two remaining technical indicators, MACD and Momentum took big hits on Friday and while not negative they have turned lower.
Caution is advised as stocks look set to retest 2075 again. If that light support level breaks, the next move will be down to the 2050.
On Friday markets did not have much of a bounce in the afternoon and so a bounce at the open on Monday would be anticipated. I am expecting it to be weak and short-lived, perhaps as short as a few minutes. From there I am expecting a weaker day as the market moves lower. Overall though I am not expecting to see another big decline but instead half a percent may be in order.
Whatever happens on Monday, the start of the week looks poor. If Monday should turn higher, any rally is suspect at this point and should be traded into and not bought into.
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