The market direction outlook for Friday was for stocks to remain mixed (which means up, down and sideways) but with the overall bias for them to move lower. In general for much of the day that’s what we found with the SPX, Dow and NASDAQ. In the end though the afternoon saw some buying although volume was somewhat disappointing, which pushed stocks into the green even if it was just $2.89 for the SPX. The NASDAQ and Dow did slightly better. Let’s first look at the intraday and then look at the overall market direction technical outlook for Monday.
Market Direction S&P Intraday Chart July 11 2014
The one minute intraday chart for July 11 below shows the choppy trading in the morning which lasted until around 1:00 PM. From there the lack of selling pushed stocks higher. I have also marked the 10:00 to 11:00 am trade period which you can see worked well once again.
One other aspect of the past couple of weeks is not only the 10:00 to 11:00 AM trade potential, but also how often the morning period sets the overall trend. By keeping the SPX market direction chart up on my screen, I have often been able to judge the overall market direction trend for the day. For example on Friday you can see how the morning trend saw higher lows. By 1:00 PM the higher lows provided enough confidence for investors to move into stocks and push them higher on the day. Keeping the one minute chart open on my trading screen, often pays big dividends during the day. If I noticed that the S&P is moving lower in the morning, I then look at the stocks I am following for trading opportunities. Often the best opportunities are in the morning when the market is weaker. I suggest keeping the S&P one minute chart open on your trading screen to assist in giving confidence to enter specific trades during the day. Even entering the market direction portfolio during the morning and then using tight stop-losses can pay decent returns daily.
Advance Declines For July 11 2014
Volume was worse on Friday with total volume of just 2.7 billion shares. Up and down volume was very close with up volume at 51% and down at 47%. Advancing issues made up 53% of the action on Friday and 44% were declining. Yesterday’s advance decline numbers confirmed that Wednesday was just a bounce. Today’s numbers show indecision on the part of investors as to whether the trend is still up or whether the market needs to pullback to find support to rally higher with renewed strength.
Market Direction Closings For July 11 2014
The S&P closed at 1967.57 up 2.89. The Dow closed at 16943.81 up 28.74. The NASDAQ closed at 43415.49 up 19.29.
The Russell 2000 IWM ETF closed down $0.15 to close at $115.10.
Market Direction Technical Indicators At The Close of July 11 2014
Let’s review the market direction technical indicators at the close of July 11 2014 on the S&P 500 and view the market direction outlook for July 14 2014.
Stock Chart Comments: Over the past several days I have pointed out the importance of the 1956 area. It was broken through on Thursday and then recovered. On Friday the market did not retest 1956, but moved away from it in the afternoon. This does not guarantee the 1956 area will not be broken early this week.
I also discussed in the chart the levels marked as A, B, C and D. On Friday we saw the S&P trend sideways for another day. This marks the fourth day after the pullback on Tuesday. Monday should see a clearer direction. You can see from looking at the past weak spots that are marked A, B, and C that in general 3 to 5 days is the maximum for stocks to drift sideways after setting a new high. We should see some action on Monday that will give up a much clearer indication of where stocks are headed 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 bigger move lower. A break below 1840 at present would challenge the 200 day EMA.
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 even though the market seems weak, you can see in the chart above that we are simply experiencing some weakness after setting another new high. This pattern of setting a new high, then pulling back and then rallying higher has been repeated often over the past several months. Therefore the pullback I am looking for is not being signaled at present. That does not mean we will not get a pullback but it does not look like any such pullback will begin this week.
Overall there are still far too many analysts expecting a pullback, in my opinion. It is rare when the majority of analysts are correct so we may not experience a downturn yet.
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 still positive but moved 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 and the sell signal is still strong on 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 is positive and continuing sideways.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change remains positive and is turning back up.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling that the market direction is lower to start this week.
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 of last week and continues to point to more selling to start this week.
Market Direction Outlook And Strategy for July 14 2014
For Monday, the market direction technical indicators remain mixed in their outlook. There are 3 indicators pointing down and three indicators that are still positive and pointing to higher prices. This has given the market direction a mixed outlook for Monday.
MACD and the two stochastic indicators however are showing strengthening down trends while the remaining 3 indicators, are not agreeing and indeed the rate of change indicator continues to point to higher prices ahead.
This mixed outlook continued to keep volatility up and some decent Put Selling premiums can be found. As long as stocks stay mixed I will continue to look for trading opportunities. I see nothing that advises me to be overly concerned but instead to stay the course and stick with large cap stocks when Put Selling or entering stock trades.
For Monday I am expecting a weak morning in market direction but overall I think there is a slight bias for stocks to try to close positive.
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