The overall market direction outlook for July 9 was for stocks to remain mixed with a bias to the downside. There were though two problems with this scenario. The first was that after two days of selling, stocks might try a comeback. The second was the surprisingly good earnings from Alcoa which seemed to disagree with those analysts pointing to more weakness worldwide. Instead Alcoa’s earnings indicated that perhaps economies were not as poor as anticipated. This brought some investors back to stocks after two days of selling.
Market Direction S&P Intraday Chart July 9 2014
The one minute intraday chart for July 9 below shows a far more choppy day today. A quick bounce at the open was met by sellers who pushed the S&P back to the low of the day around 1,965.10. This resulted in the usually 10:00 to 11:00 AM trade when a rally provided an exceptionally nice Trading For Pennies Strategy trade on the SPY ETF with call options. From there the market moved sideways and tried to push higher into the mid-afternoon only to hit another patch of selling just after 2:00 PM. This resulted in a higher low which signaled that the rest of the day stocks would move higher. Stocks rallied back and higher than the morning high. In the end stocks closed at 1972.83 and not once did the S&P try to challenge the 1956 level. This will add further strength to the 1956 support level.
Interestingly, the positive move higher today was also caused by the Fed minutes which showed that they plan to complete their tapering by October although it did not show a time frame for when interest rates would rise. The fact that the Fed decided to end tapering by October was seen as bullish for the economy by most investors today. That outlook could change quickly if stocks pullback shortly.
Advance Declines For July 9 2014
Volume on Wednesday was down slightly from Tuesday to 2.8 billion shares. Up volume though was 68% of all trades. Only 84 new highs today and 18 new lows would indicate that the day might end up being just a bounce back.
Market Direction Closings For July 9 2014
The S&P closed at 1972.83 up 9.12. The Dow closed at 16985.61 up 78.99. The NASDAQ closed at 4419.03 up 27.57.
The Russell 2000 IWM ETF closed up just 15 cents to close at $116.49. The slight move up today also adds to the possibility that today was just a bounce back after two days of selling.
Market Direction Technical Indicators At The Close of July 9 2014
Let’s review the market direction technical indicators at the close of July 9 2014 on the S&P 500 and view the market direction outlook for July 10 2014.
Stock Chart Comments: Yesterday I pointed out the importance of the 1956 area. While it is extremely light support, today we saw stocks fail to fall back any lower which left the 1956 valuation still intact as a support level. I also discussed in the chart the levels marked as A, B, C and D. Today we saw stocks turn sideways and move up slightly recovering a bit of what was lost. The recovery today made up more than 50% of Tuesday’s decline. That normally is more than a bounce.
I was prepared today to buy Spy Put options and/or the Ultra Short ETFs but the market did not move lower but instead may stick with the previous pattern which I marked with A, B, C and now D in the chart above. Tomorrow should show us which way the market will move next.
Support levels at present are 1930 and 1919 which are light support. 1870 and 1840 are strong support. 1870 and 1840 at present mark important trading levels for investors. Both are now below the 100 day exponential moving average (EMA) so any pullback this summer which breaks 1870 should be used as a signal to commence picking up ultra short ETFs or spy put options 2 months out for a move lower. A break below 1840 at present would challenge the 200 day EMA however at the rate the market is moving higher the 1840 and 1870 will soon be below the 200 day EMA which is sitting around 1825 at present.
I have repeatedly mentioned two other support levels, namely 1775 and 1750. As the market continues to push higher, these are now critical support levels. 1775 is important but 1750 is now the bottom line. A break of 1750 would mark a severe correction of 11% at present which 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.
My Pullback Outlook: I have been waiting for a pull-back this summer to between 1870 to 1919. At present about the only possible catalyst to the downside is poor earnings in the upcoming quarter which could catch many investors unprepared. The second catalyst we are now seeing develop is the slowdown in Europe and Germany particularly. For many investors this brings out concerns of possible deflation. Whether this can actually bring stocks lower is difficult to determine at present. We should know in a day or two.
Momentum: For Momentum I am using the 10 period. Momentum has been the best indicator over the past eight months, replacing MACD as the most accurate indicator. Momentum is now back up today and still positive.
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 and confirmed that signal with a lower reading 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 positive and now turning sideways.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change remains positive but is continuing to fall. Today we had a slight Ulick in the Rate Of Change indicator.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. Yesterday the Slow Stochastic signaled that the market direction was up for later this week. At the close today the Slow Stochastic still points to a lower move ahead for stocks.
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 issued a sell signal on the market direction on Monday. That sell signal continued today and is still strong.
Market Direction Outlook And Strategy for July 10 2014
The move back higher today could easily be just a bounce back after two days of selling. However with the S&P sitting at an all-time high it’s hard to believe that today’s move was simply a one day bounce. Overall then we need to see tomorrow to get a clearer picture of what the market direction will do next.
The technical indicators are almost unchanged from yesterday. Only momentum turned back up to move back to positive after being neutral. MACD on the other hand confirmed the sell signal today. Both the Fast Stochastic and the Slow Stochastic indicators are strongly negative but there is an upturn on the Fast Stochastic so we could see a change after the close tomorrow.
While I might prefer to indicate that stocks are now going to move back higher, I have to look at what the technical indicators are saying and right now they are still leaning towards a lower day tomorrow. I have found in the past that making personal predictions is not nearly as accurate as the technical indicators. Therefore, for tomorrow the market direction is still mixed with a bias lower.
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