I had expected the markets to be weak to start the day on Monday but then push back and close slightly higher. The weakness was evident in the technical indicators but also simply due to the short week last week and earnings which unofficially starts tomorrow with Alcoa. Instead though investors pulled back further than I had anticipated which stopped out the market direction portfolio.
Market Direction S&P Intraday Chart July 7 2014
The one minute intraday chart for July 7 below shows today’s somewhat choppy session. The start of the day saw a quick drop and then the market stalled around 1928. An early morning rally failed and stocks continued to be under pressure and moved lower. The range though was quite tight with the low being around 1975 and the upper range around 1979. The close for the day was at 1977.65 almost at the early morning low.
Advance Declines For July 7 2014
Volume on Monday was again very light with just 2.7 billion shares traded. However this is summer now and volumes tend to be lighter. Down volume made up 76% of today’s trades and there were just 91 new highs and still only 8 new lows. These small new lows are telling us that today was not a sell-off or a precursor to a sell-off by any stretch. This was simply weakness while investors sort through last week’s jobs numbers and prepare for the quarterly earnings.
Market Direction Closings For July 7 2014
The S&P closed at 1977.65 down 7.79. The Dow closed at 17,024.21 down 44.05. The NASDAQ closed at 4451.53 down 34.40..
The Russell 2000 IWM ETF closed down $2.05 for a loss of 1.71% to close at $117.77. This was the biggest loss among the indexes for the day. Whether this is telling us that there is additional problems ahead we will have to wait a bit longer to find out but the drop today was far bigger than anyone would have expected.
Market Direction Technical Indicators At The Close of July 7 2014
Let’s review the market direction technical indicators at the close of July 7 2014 on the S&P 500 and view the market direction outlook for July 8 2014.
Stock Chart Comments: Nothing new to report at present. Support continues to build at 1956. 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 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. Personally I am not expecting that to be the case at present.
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 buy signal on Thursday but it was not confirmed today. We will need another day to see if the buy signal can be confirmed.
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 no longer overbought as it falls.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change remains positive but is turning down.
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 extremely 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 down and it is also extremely overbought.
Market Direction Outlook And Strategy for July 8 2014
The technical indicators are somewhat undecided on tomorrow’s direction. No buy signal yet from MACD plus a down signal from the Fast Stochastic could be enough to see the S&P move lower on Tuesday. Many of the other indicators are still positive but moving lower.
Overall though the indicators are still strong enough to give us a sideways outlook for Tuesday with a slightly positive close. Once Alcoa earnings arrive after the markets close on Tuesday we will have a better idea what to expect from investors. Tomorrow is a “wait and see” kind of day although I still think there is enough strength in the indicators for a positive close.
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