The market direction outlook for Wednesday was for stocks to move higher. Indeed from the outset stocks did move up with testimony continuing with Fed Chair Yellen. Yellen today said very little except that the Fed stands ready to remain accommodative. This was a far different comment from yesterday’s comment about social media and small tech stocks. Those comments still had investors talking today. Meanwhile the economic news for today assisted stocks in their push higher.
- China reported stronger than expected economic expansion with a 7.5% annual pace in the second quarter
- mining sectors rose on hopes that the Chinese economic expansion will continue and assist in driving up many metals and indeed aluminum and zinc both rose
- gold rebounded slightly to close up $2.70 to $1299.80 clinging to the $1300 level.
- crude oil moved up after the Chinese data was released
- Time Warner rejected a stunning $80 billion dollar offer from Twenty-First Century Fox
- Intel rose a shocking 9.27% on its earnings news and forward-looking guidance
- Microsoft followed Intel with a jump of 3.84% on the Intel news and nothing more
- IBM rose 2% on the news of business collaboration with Apple
- Industrial production climbed in June capping the strongest quarter in almost four years. 0.2% increase in output in June followed a revised 0.5% advance in May. The June figures was below expectations but was still seen as a signal the economy is still growing.
- The fastest pace of car sales in eight years
- Confidence among the nation’s homebuilders climbed in July to the highest level in six months.
- Manufacturing, which makes up 75 percent of total production, grew 0.1 percent in June, less than forecast but again still seen as a sign of continuing growth
So today quite a few events helped to propel the S&P, Dow and NASDAQ higher.
Market Direction S&P Intraday Chart July 16 2014
The one minute intraday chart for July 16 is interesting in that we can see the entire rally in the morning was given back by the lunch hour. The decline in the noon hour was somewhat surprising considering the strength of many of the stocks and advance decline numbers for today. After the “give-back” stocks rallies again but only to 1981 where for the entire afternoon stocks simply drifted sideways in a very tight trading pattern. In the end the 1981 level was where stocks ended the day. The morning rally which took stocks over 1983 failed to be recovered in the afternoon.
Advance Declines For July 16 2014
Volume picked up again today with 3.4 billion shares or about 100 million more shares traded. The numbers though showed that stocks were possibly a bit more mixed than at first thought. 53% of stocks were advancing while 43% were declining. Up volume though made up 64% of the action today. This is why the morning saw the early rally stall and give back all the gains. Stocks were not quite as strong as it first may have appeared..
Market Direction Closings For July 16 2014
The S&P closed at 1981.57 up 8.29. The Dow closed at 17138.20 up 77.52 . The NASDAQ closed at 4425.97 up 9.58
The Russell 2000 IWM ETF closed down again today losing 31 cents to close at $114.24. The small caps are starting to be hammered again. A second decline in the small caps cannot assist the markets moving into new virgin territory. A second decline in the Russell may impact the rally as we move into August.
Market Direction Technical Indicators At The Close of July 16 2014
Let’s review the market direction technical indicators at the close of July 16 2014 on the S&P 500 and view the market direction outlook for July 17 2014.
Stock Chart Comments: If you look at the chart above you can see the levels marked A, B, C and D. I explained in the past few market direction outlooks that these levels show a pattern of reaching a new high and then a slight pullback and then another move back up. Yesterday’s movement in stocks broke that pattern. This was the first such alteration to the pattern in the past three months. Today’s move tried to re-establish the same pattern as stocks attempt to push into a new high and today stocks came close in the morning with an intraday high almost reaching the all-time intraday high of July 3.
Support levels at present are 1956, 1930 and 1919 which are all 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. Indeed this week actually looks more like stocks will move higher still.
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. When most analysts are bullish, and many bears have joined them, that would be the time for a pullback in my opinion.
Momentum: For Momentum I am using the 10 period. Momentum has been the best indicator, replacing MACD as the most accurate indicator. Momentum is still positive and moving 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 active 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 continuing sideways. It is overbought.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change remains positive and sideways.
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 back to up for the end of the 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 has now changed to an up signal for Thursday.
Market Direction Outlook And Strategy for July 17 2014
The market direction outlook from the technical indicators perspective is unchanged from yesterday. MACD is the only negative indicator and indeed the Fast Stochastic is signaling that there is strength to the move higher. But sometimes you have to read a bit more into the market than just what the technical indicators are explaining.
What we want to do now is stay cautious and keep an eye on the S&P chart pattern. The pattern I explained and marked in the technical chart above as A, B, C and D must be watched carefully. Yesterday the ongoing pattern was broken and today’s move higher was not strong enough to re-establish the pattern we have seen with other weak periods. Indeed the morning sell-off wiping out the entire morning rally is a sign of underlying weakness rather than strength. Investor euphoria can quickly turn to nervousness. Yesterday investors were nervous with Yellen’s comments about specific stock sectors. Today investors shrugged it off and were back pushing stocks. But the signs of a weakness in the underlying market is definitely present.
With the S&P now trying to push to a new all-time high we want to keep our eye out for failure to advance. If over the next few days the S&P wanders sideways and fails to keep moving higher, stocks may be advising that the rally is slowing and could turn sideways and then down. I have been expecting a pullback but so have far too many analysts. The chance of a pullback is slim with so many analysts looking for a pullback, but eventually there will be one. With the market now trying to set a new high, what we must see is a continuation of the advance started today. Any sideways action and stocks may have seen their summer highs. This is worth watching for.
As well the Russell 2000 continues to not participate and is falling further and further behind. This will mark the second downturn for the Russell and it will be rare for this pullback if it becomes further extended, to not impact the S&P and Dow rise.
For Thursday then I am expecting the market direction to return to a more choppy outlook but continue to try to move higher. My outlook then is cautious but higher. Watch for any signs that the market cannot move up much more in coming days.
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