The market direction outlook for Monday was for stocks to be weak. However to keep the market direction up intact, the S&P needed to close above the 1970 level. Despite all the worries over the Ukrainian crisis and the Gaza strip offensive in the end the markets closed well off their lows and more importantly the S&P closed above 1970. Let’s take a look at the intraday action today.
Market Direction S&P Intraday Chart July 21 2014
The one minute intraday chart below shows Monday’s action. The morning saw a drop which first stalled at the 1970 valuation. From there stocks tried to rally, reaching a high of 1973.58 at 9:55. From there stocks sold back down and once more traded sideways at the 1970 level before finally breaking lower and falling to a low of 1965.89 by 10:44. A second test of the low a few minutes later was all investors needed to begin buying again. You can see that the buying only pushed the index back to the 1970 level. From there stocks wandered throughout the lunch period before moving higher after 1:00 PM. The afternoon was spent with stocks tested highs above 1975 before closing at 1973.63 which was the 9:55 morning rally high. The most important aspect of this chart is the 1970 area which held up to selling, supported the market and eventually assisted in boosting stocks higher.
Advance Declines For July 21 2014
The biggest problem with today’s action which saw the S&P hold above 1970 was volume. With just 2.6 billion shares traded, volume was poor and down volume made up 60% of all shares traded. Declining issues were 61% of all stocks. 71 new highs were made and 31 new lows. New Lows are beginning to rise.
Market Direction Closings For July 21 2014
The S&P closed at 1973.63 down 4.59. The Dow closed at 17,051.73 down 48.45 but still above 17,000. The NASDAQ closed at 4424.70 down 7.44 for the strongest showing of the indexes.
The Russell 2000 IWM ETF closed at $113.77 down 46 cents.
Market Direction Technical Indicators At The Close of July 21 2014
Let’s review the market direction technical indicators at the close of July 21 2014 on the S&P 500 and view the market direction outlook for July 22 2014.
Stock Chart Comments: I have been commenting for several days regarding the past chart patterns of the various dips in the S&P over the past 3 months. I have marked these in the chart above as A, B and C. The period marked D is where stocks are at present. You can see that all the patterns are basically the same for the dips, except the present one marked D.
That pattern has been broken starting last Thursday and continuing today. This is a concern at present for the ability of the S&P to continue to move higher.
1956 Support Level was tested on Thursday and held the market up again setting up the 1956 as a significant support level for the present rally. A close back below 1956 would make the present rally suspect and advise to trade to the downside. 1956 is NOT a significant support level for the bull market in general but it is for the market being able to continue higher into August.
Support levels at present are 1956 which is medium support and pivotal to the market direction continuing higher. 1930 and 1919 are both light support and would most likely just delay a strong pullback by a day at most. 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 absolutely critical support levels. 1775 is important but 1750 is now the bottom line. A break of 1750 would mark a severe correction of 230 points which is below a 10% correction 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. We are beginning to see a break in the chart pattern stocks have experienced throughout the rise to new all-time highs. The VIX Index however seems unconcerned at present but that may change shortly if the pattern from this dip continues to weaken further.
Momentum: For Momentum I am using the 10 period. Momentum has been the best indicator, replacing MACD as the most accurate indicator. Momentum failed to turn positive on Monday and continued to remain slightly negative.
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 but low.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change is still positive today but it has once again pulled back.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. As the Slow Stochastic tries to predict the market direction further out than just one day, it has remained with a down signal despite Friday’s advance. On Friday at the close the Slow Stochastic advised that stocks would see lower prices to start this week. That is what happened today. The sell signal however is still active on the Slow Stochastic.
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 was signaling that stocks would move higher on Monday. This did not happen and at the close today the Fast Stochastic was neutral on the direction for Tuesday. You can however see that the Fast Stochastic is once again on the verge of issuing a sell signal after today’s negative market action.
Market Direction Outlook And Strategy for July 22 2014
I had indicated that Monday would probably decide whether Thursday’s drop was just a one day pullback. Indeed early in the day on Monday it seemed that perhaps Thursday’s pullback had stronger repercussions for the market than first realized. Yet stocks moved higher into the afternoon and the close was only slightly negative. The NASDAQ close was the best among all the indexes and continued to show a full recovery from Thursday’s sell-off.
The push lower in the morning on Monday and then a recovery to close above 1970 in the afternoon was done on very light volume and new lows are starting to rise, both of which advise that a cautionary stance remains warranted.
The technical indicators are primarily pointing to weakness among stocks with both the Slow Stochastic and MACD pointing to further downside but not a major move lower just more weakness such as was seen on Monday.
With 3 negative indicators, one neutral and two positive but moving lower indicators, the outlook for Tuesday is for stocks to show weakness and close lower even if just marginally. If stocks close below 1970 and close to 1960, more downside will enter the market direction. Today’s market direction close has left the market with a mixed outlook.
For Tuesday then, the outlook is for weakness to continue for stocks with the bias lower.
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