What investors needed to see today was confirmation that the market direction rise on Friday was more than a bounce in an oversold market. To confirm investors need to see a rise and a hold at or above 1940. That did not happen today.
The morning saw a decent rise in stocks but then news that Ukraine would allow a Red Cross humanitarian mission with assistance from the European Union, the United States and Russia pushed stocks lower as investors turned cautious as the day wore on.
Let’s take a look at Monday’s action.
Market Direction S&P Intraday Chart August 11 2014
The one minute intraday chart for the SPX for August 11 below shows the morning bounce with stocks pushing to just below 1945 by 11:30. As in prior sessions before the market direction pullback, the early morning set the high and the rest of the day was spent trying to hold onto a positive close. Today was no different. The rally in the morning ended shortly before 11:30. Within half an hour the 1943 level broke was recovered and then broke again. This pushed stocks lower. Then the Ukraine news on the Red Cross mission sent stocks lower below 1940 around 2:00 PM. A rally back tried to retake the 1940 level, failed and then fell back to close at 1936.92 which was still above the 1930 level. This though did not confirm Friday’s rally.
Advance Declines For August 11 2014
Volume was still low on Monday with just 2.8 billion shares traded. However 73% of that volume was up and 71% of all stocks advanced on Monday. There were 78 new highs and 24 new lows. All of these numbers point to no confirmation of Friday’s rally, but instead show a tendency of the market direction to move sideways.
Market Direction Closings For August 11 2014
The S&P closed at 1936.92 up 5.33. The Dow closed at 16,569.98 up 16.05. The NASDAQ closed at 4401.33 up 30.43. All the indexes were well off their highs for the day.
The Russell 2000 IWM ETF rose $1.07 after rising $1.08 on Friday. IWM closed at $113.34 up almost 1% on the day. The IWM ETF lead the markets higher today.
Market Direction Technical Indicators At The Close of August 11 2014
Let’s review the market direction technical indicators at the close of August 11 2014 on the S&P 500 and view the market direction outlook for August 12 2014.
Stock Chart Comments: There are two important aspects to today’s chart. The first is that the market closed above 1930 for a second day. I have marked 1930 as support once again in the market. The other is a second day of closing above the 100 day EMA.
1975, 1956 Support: These two support levels have been broken and will now act as resistance.
Strong Support Levels are at 1870 and 1840. The 1870 level is below the 100 day EMA so I am expecting this pullback to reach that far but a lot now depends on how strong the recovery bounce may be. 1840 is below the 200 day EMA and would mark a serious correction. A break of 1870 is a definite signal that those investors not holding Ultra short ETFs or SPY PUT Options 2 months out, should be doing so by this point for a bigger move lower.
The other two support levels not shown in the chart above 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 now the bottom line.
A break of 1750 would mark a severe correction of 180 points which is below a 10% 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 at this point and it is not something I am anticipating as there are no signs of any impending correction of that magnitude. If stocks did get this low it would become questionable if the correction would move down at least another 5%.
My Pullback Outlook: I have been waiting for a pull-back this summer to between 1870 to 1919. The market fell to 1910 in the recent pullback last week before bouncing back on Friday. We will know this week if this is the end of the pullback I had been expecting.
Momentum: For Momentum I am using the 10 period. Momentum has been the best indicator, replacing MACD as the most accurate indicator. Momentum is negative and moving sideways.
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 sell signal on July 8. Today the sell signal continued although it is weaker than 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 yesterday was about to turn positive but instead with the market falling this afternoon, the Ultimate Oscillator turned lower and stayed negative.
Rate of Change: Rate Of Change is set for a 21 period. Today’s the Rate Of Change remained negative on today and continued sideways.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. As the Slow Stochastic tries to predict the market direction further out than just one day. The Slow Stochastic is no longer oversold and is pointing to the market direction up for Tuesday.
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 pointing to stocks moving higher for Tuesday with a strong up signal. It is no longer oversold.
Market Direction Outlook And Strategy for August 12 2014
Perhaps the most important aspect of today was that the market did not fall below 1930. Indeed there was not a period of weakness where stocks turned negative as I had suspected might occur. With the SPX closing above the 1930 level and above the 100 day EMA today, it may be signaling that the market direction up will continue for Tuesday.
Two things to note is that the market direction fell around 2:00 PM because of news out of Ukraine. Again a geopolitical event caught the attention of investors. Without that event, the market would perhaps have closed higher and confirmed the market direction up.
The second note is that both the Slow Stochastic and Fast Stochastic are no longer oversold and yet both are showing a strong move higher for tomorrow.
Technically there are 4 indicators pointing down and just two pointing higher. The Rate Of Change sitting sideways is a concern and the Ultimate Oscillator turning back down after almost turning positive in the morning is also a concern.
Investor still need to see the market confirm the move from Friday. If the move is back to higher, the market direction should pick up on Tuesday. If however it turns lower, then Friday’s bounce is most likely just that – a bounce before more selling arrives. I had thought Monday would tell us what direction stocks are going to head. Instead investors have to wait for Tuesday to get a clearer picture of market direction.
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