The market direction outlook for Tuesday was for stocks to continue their advance but not at the same pace as Monday and that is what happened. While analysts stew and worry about why the market is not dropping, investors seem intent on moving the market higher. The Dow is pushing toward 17,000 and the S&P is within challenging distance of its all-time high. The NASDAQ meanwhile is setting 10 year records. Even the Russell 2000 is “back in the game”. The biggest push came last Friday when the market plunged on news of Ukraine and Russia possibly entering a new conflict, but later in the day on Friday the market recovered much of what was lost and brought the S&P right back to the 50 day simple moving average (SMA). That set the S&P up for Monday’s big rally and today momentum from Monday carried forward.
Today stocks also climbed on the back of a surge in housing starts to 1.1 million. Home Depot reported a 14 percent jump in quarterly revenue beating estimates by 8 cents showing that the home-improvement business is alive and well. Home Depot shares shot up 5.55% or $4.64 to set a new intraday high of $88.99. All of this continues to point to further recovery of the US economy but analysts and investors are sure that Fed Chair Janet Yellen will remain largely uncommitted to raising interest rates this year and perhaps early next. Most believe that at Jackson Hole when Yellen speaks she will basically repeat that there is no rush to raise rates.
This means investors are back in a buying mood convinced that the pullback is over and there is still room for stocks to run higher before Yellen finally moves interest rates. All in all, analysts seem dumbfounded in the continual rise of stocks and the belief for them is that stocks are going to collapse and this will end badly. Personally I think it is more imp0rtant to trade what you see and not what analysts expect. Remember that it is a rare event when the majority of analysts are correct. Once most analysts are drawn into the upside of the market, that will have me a lot more worried than right now.
Advance Declines For August 19 2014
Volume today was poor again with just 2.6 billion shares traded marking another low trading volume day. Part of the reason for the big swings in the summer months is the poor volume. 61% of stocks were rising today which is down from yesterday’s 76%. 67% of volume was up which is also down from 81% yesterday. Meanwhile new highs reached 180 while new lows were just 18. Yet again the bulls remained in charge all day.
Market Direction Closings For August 19 2014
The S&P closed at 1981.60 up 9.86. The Dow closed at 16,919.59 up 80.85. The NASDAQ closed at 4527.51 up 19.20.
The Russell 2000 IWM ETF rose $40 cents to close at 115.44. The Russell 2000 is now back above the 50 day SMA.
Market Direction Technical Indicators At The Close of August 19 2014
Let’s review the market direction technical indicators at the close of August 19 2014 on the S&P 500 and view the market direction outlook for August 20 2014.
Stock Chart Comments: The most important aspect of today’s chart is the recovery of the 1975 level and the close above it at 1981.60.
1975, 1956 Support: Both are light support and both may be tested in coming days but for the time being stocks look set to try to challenge the all-time high.
Strong Support Levels are at 1870 and 1840. At present I am not expecting any break of either of these levels.
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 more than 10% 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.
Momentum: For Momentum I am using the 10 period. Momentum has been the best indicator, replacing MACD as the most accurate indicator. Momentum is positive and climbing..
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 buy signal on Friday August 15. MACD continued to climb today.
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 still overbought. While I had expected a bit of weakness at some point in the day today there was none. Still we could see some weakness tomorrow but the pullback is over so any weakness is a “buy the dip” opportunity.
Rate of Change: Rate Of Change is set for a 21 period. Today the Rate Of Change failed to turn positive again although it is almost neutral. Part of the reason is the poor volume in trading.
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 signaling market direction is up.
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 signaling up for stocks.
Market Direction Outlook And Strategy for August 20 2014
The technical indicators are very clear. The market is moving higher. While the Ultimate Oscillator is overbought it could take a few days for much of a pullback or dip to develop. The strength of the past two days will most likely not be repeated. Often when investors jump in and buy pushing stocks quickly higher, it is the same as when they sell. It reaches a point where buying slows and then eventually dries up just like selling does.
Right now we have seen three strong days of buying. This includes Friday as the first day when the market recovered from the morning plunge. Volume remains incredibly poor but is typical of the summer period. This is part of the reason stocks have pushed higher so quickly. A lack of volume means prices rise faster than usual and at the same time lack of volume can also drop prices faster.
For Wednesday we should see night quite as strong an advance but more a sideways type day with the bias still remaining to the upside. At this point unless 1975 breaks again, the market direction is up and every dip is an opportunity to set up more trades for profits. The key then is the 1975 valuation. I will be watching it going forward for the rest of this week and into next.
Remember that any change in the fighting in Ukraine could result in another pullback of stocks. I doubt we have heard the last of Putin and Ukraine.
For Members there has been a change in the medium-term market direction outlook which members can review here.
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