The market direction on Tuesday moved higher quickly through much of the early morning. The outlook had been for a sideways day with a higher close. Instead the sideways movement didn’t start until around 11:40 and then with the day’s major gain already in place the rest of the day saw the market add a few more points and then trend a bit lower into the close. All in all, it was an exceptional day for all the indexes. The Dow at one point hit 17000 and then pulled back to close up 0.76%. The NASDAQ was up 1.14% and the SPX 0.66%. Despite the pullback from new all-time highs for the S&P and Dow, the indexes were on fire for the day and look ready to tackle today’s all-time highs later this week. Let’s take a look.
Market Direction S&P Intraday Chart July 1 2014
The one minute intraday chart for July 1 shows how little selling there was during the day. There were three steps higher in the morning to early afternoon. You can see these 3 rallies in the chart below. The second rally started a sideways motion in stocks which latest into the close. The third rally set a new all-time high of 1978.58. It was at this same time that the Dow broke 17000. From the early afternoon all-time high, stocks then trended slightly lower and closed at 1973.32. This marked another day above 1956 which is rapidly becoming a significant level for the SPX at this point in time.
Advance Declines For July 1 2014
The number of stocks making new 52 weeks highs moved above 300 on Tuesday with 351 new highs and only 5 new lows again today. Volume though remained light at 3.1 billion shares. 65% of stocks were advancing while 32% were declining. Despite today’s big move higher volume did not really increase by much which means we could see a slight pullback to start the day off on Wednesday.
Market Direction Closings For July 1 2014
The S&P closed at 1973.32 up 13.09. The Dow closed at 16,956.07 up 129.47. The NASDAQ closed at 4458.65 up 50.47 and intraday came within a point of setting a new 52 week high..
The Russell 2000 IWM ETF closed up $1.21 at $120.02 and during the day set a new 52 week high at $120.97.
Market Direction Technical Indicators At The Close of July 1 2014
Let’s review the market direction technical indicators at the close of July 1 2014 on the S&P 500 and view the market direction outlook for July 2 2014.
Stock Chart Comments: The push higher into new virgin territory is creating a new support level in the S&P. You can see how support is starting to build at the 1956 level. Each day that stocks close back above 1956 is slowly building light support. This may not last and it certainly won’t hold the market up at the present time but it is encouraging for more upside action.
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 10.5% 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. The only pullback we may experience is from the overbought condition the market is once more in, or a shock in the next quarterly revenue numbers which will start unofficially on July 8 with Alcoa reporting its revenue.
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 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 a sell signal on June 24. That sell signal remains active but weak.
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 positive and moving higher. It is now overbought.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change remains positive and is now moving sideways.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling market direction is up and it is 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 signaling that the market direction is up and it is now extremely overbought.
Market Direction Outlook And Strategy for July 2 2014
The jump today continues to add to this historic data for the first trading day of July which for the past 24 years has been up 19 times. This also bodes well for higher values this month as well.
The technical indicators are overwhelmingly bullish and continue to show a very overbought market. Markets though can stay overbought for lengthy periods of time before they finally pullback. We could be on the verge of seeing this overbought condition remain for a few days.
While stocks pulled back from new all-time highs, this is only natural and a common event on such a big up day. Investors should see these same new all-time highs broken shortly as stocks will at this stage continue their momentum higher.
Meanwhile, since January, every single big up day such as today, has not been followed by another strong up day. This could mean that on Wednesday investors will see some weakness in the morning and a slightly positive close.
For Wednesday
For tomorrow then stocks are set to continue to move higher. Stocks may be weak in the morning as some investors take profits after today’s big move higher but overall I am expecting another positive close. Friday we get the unemployment numbers and on Thursday the Weekly Initial Unemployment Insurance Claims. I am expecting good numbers both days which will assist in moving stocks higher at this stage of the rally.
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