The market direction outlook for Thursday was for stocks to turn more sideways than up or down but keep the bias to the upside. Instead markets shot up by the lunch hour and then turned sideways into the afternoon. The SPX tacked on another 5.86 points to close at another all-time high. There are several reasons for the jump continuing today including investor confidence in what Yellen will say tomorrow. As well the German manufacturing purchasing managers index jumped to 58 for August from 55.8 in July marking the highest level since April 2010. Investors took this to mean the slowdown in Germany will be short-lived. As well new home sales rose for a fourth straight month.
Weekly Initial Unemployment Insurance Claims
While not as much has been made of the Weekly Initial Unemployment Insurance Claims lately, today’s claims are continuing to show that unemployment is declining. The latest claims fell to 298,000 while last week’s were revised to 312,000. Basically the improvement is not reaching a pace that should be averaging around 250,000 a month. In past years I wrote extensively that the US economy needed to see the magic number of 250,000 continuously to bring the unemployment rate down. For the first time, 2014 is showing these kinds of numbers. These numbers also mean that the non-participation rate will decline. That is the rate the Fed has been watching. While stocks are flying high, the signals are there that are advising investors interest rates will rise and probably by the spring. Meanwhile October looms ahead when the Fed’s last Quantitative Easing program ends.
SPX Market Direction Intraday One Minute Chart
The morning opened with a quick bounce and then a move down to 1987.40. This was a very shallow dip which was followed by another rally higher and then a dip back again to the same 1987.40 level around 10:30. From there the market pushed to around 1992 where it traded for much of the afternoon. The rise later in the afternoon testing new heights for the SPX. Into the close the S&P held the 1992 level, closing at 1992.37. This was another day when the close was actually the morning high.
Advance Declines For August 21 2014
Volume today continued to be low with just 2.6 billion shares traded. 59% of all volume was up with 39% down. 58% of all stocks were advancing. Once again the bulls stayed well in charge with 169 new high and just 19 new lows.
Market Direction Closings For August 21 2014
The S&P closed at 1992.37 up 5.86. The Dow closed at 17,039.49 up 60.36. The NASDAQ closed at 4532.10 up 5.62.
The Russell 2000 IWM ETF rose 25 cents to close at 115.20 to close just above the 50 day simple moving average (SMA).
Market Direction Technical Indicators At The Close of August 21 2014
Let’s review the market direction technical indicators at the close of August 21 2014 on the S&P 500 and view the market direction outlook for August 22 2014.
Stock Chart Comments: The market is now within an easy reach of the 2000 valuation. Again the 1975 level is the most important valuation at the present time.
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 heavily overbought which can continue at this level for some time yet before pulling back, however a pullback to reduce the overbought condition can happen at any time.
Rate of Change: Rate Of Change is set for a 21 period. Today the Rate Of Change finally pushed slightly above neutral to indicate a very weak positive outlook..
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 and is extremely overbought.
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 and is extremely overbought.
Market Direction Outlook And Strategy for August 22 2014
I had expected more struggle for the Dow to break through the 17000 level. This level has been tough for the Dow to hold and then stay above. Today though the struggle was easy and the Dow closed above it. Meanwhile all the technical indicators are now positive and three are very overbought. For Friday then the market appears poised for nothing but good news from Fed Chair Yellen. Anything even slightly negative could push stocks lower.
My outlook though is for stocks to react more to the extremely overbought condition and either move slightly lower or at the most move slightly higher. However Yellen could change that depending on what she indicates tomorrow.
Whatever happen on Friday, ultimately my strategy is still the same as I do not expect any dip even if it is from Yellen, to last for long. The mood at present is one of expansion for stocks. In general the quarterly earnings have surprised to the upside. This means higher valuations may have further support and thereby more room to run higher. Any dip at the present time will see me selling more puts and taking on more trades as I put back to work the capital I pulled out of stocks late last month.
Eventually the overbought condition will stall the present market advance and Friday may see that happen as many investors do not want to hold positions over the weekend but in general the market direction remains bullish and to the upside.
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