Stocks were trounced heavily on Tuesday as investors fretted over revenue numbers from the likes of Microsoft, Caterpillar, United Technologies, Procter and Gamble, and others along with concerns that the high US Dollar was going to impact more revenue numbers in the days ahead. But with 24 percent of companies reporting to date, 70.6% have topped earnings expectations and 55.5 percent have beaten on revenue. That fares well against past numbers. With Apple reporting after hours with a giant beat on revenue and earnings as well as increased forward guidance and the likes of Yahoo also beating handily, tomorrow could be a different story. Let’s take a look at Tuesday’s action.
Advance Decline for Jan 27 2015
Volume was lighter at 3.3 billion shares, partly because of the snowstorm. Down volume made up 63% of all volume but new highs again came in at 217 while new lows came in at just 46. The day may have looked like it belong to the bears but the bulls easily trounced the bears on the new highs.
Market Direction Closings For Jan 27 2015
The S&P closed at 2,029.55 down 27.54. The Dow closed at 17,387.21 down 291.49. The NASDAQ closed at 4,681.50 down 90.27 and marking the worst one day since October.
Market Direction Technical Indicators At The Close of Jan 27 2015
Let’s review the market direction technical indicators at the close of Jan 27 2015 on the S&P 500 and view the market direction outlook for Jan 28 2015.
Market Direction Technical Analysis for Jan 27 2015
Stock Chart Comments:
The S&P fell back to the 100 day exponential moving average (EMA) today but the most important signal is that the low today is still far above the low made about two weeks ago mid-January. That means the rally remains intact.
Support and Resistance Levels:
These are the present support levels.
2075 was light support and is now resistance. Below that was 2050 which was light support and not yet resistance. Stronger support is at 2000.
Weak support is at 1970. Stronger support is then 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 at this point and it is not something I am anticipating at present.
Momentum: For Momentum I am using the 10 period. Momentum fell to neutral.
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 Jan 22. MACD continues to be positive but today’s reading shows it is falling back.
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 positive but falling.
Rate of Change: Rate Of Change is set for a 21 period. The Rate Of Change is trending lower which is signaling a probable change in market direction. The reading though must be more negative than it is today to justify any call for a downtrend to commence.
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 signaling market direction is down.
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 down for stocks.
Market Direction Outlook and Strategy for Jan 28 2015
The bigger impact on Wednesday could be stocks like Apple. Apple in particular roared past estimates and should stun the negative analysts with its numbers. The iPhone 6 and especially the iPhone 6 plus are runaway successes.
Technically the indicators are mixed but that does not mean an impending collapse is upon the market. Instead today’s action looks a lot like a blow-off from investors looking for an excuse to get out of positions. Many had been wanting to take profits and this was probably the excuse to do so.
With both stochastic indicators issuing sell signals, although the Slow Stochastic was a weak one, momentum neutral, Rate Of Change negative and falling, the S&P down at the 100 day EMA , MACD falling but still positive along with the Ultimate Oscillator , it may seem strange to call for an up day on Wednesday. We though have not yet heard from the Fed and on the back of great revenue and earnings numbers this evening from Apple, Yahoo and others, personally I think stocks may try to bounce off the 100 day.
I would expect a bounce at the open, some selling into the mid-morning and then an attempt to move higher. Even a moderately higher afternoon could be enough to end the selling from Tuesday. While that might be hard to imagine, I think we have a chance for a rebound. The technical indicators though, do not agree with me. We will have to see who is right on Wednesday.
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