The market direction outlook for Monday was for stocks to move sideways but end up slightly higher. This is what happened on Monday despite continued fighting in Iraq and a forecast from the International Monetary Fund for just 2 percent growth this year in the US down from earlier estimates of 2.7 percent. For Tuesday and Wednesday investors will be focused on the Federal Reserve. On Wednesday the Fed will deliver its latest outlook on the economy and any changes to the ongoing tapering. Analysts believed the Fed will announce a further reduction of $10 billion to the bond buying stimulus. Some analysts are predicting a reduction of as much as $35 billion.
Market Direction S&P Intraday Chart June 16 2014
The intraday 1 minute chart for June 16 shows a choppy day on Monday. At the open a slight weakness to start was met by buying which pushed the S&P up to 1941 within about 35 minutes. From there the rally stopped and investors sold positions dropping the S&P back to the morning low of 1930.91. This though was still above 1930 which I have mentioned a number of times over the past few days as what appears to be a growing important technical level. This again was the 11:00 AM trade for those doing the Trading For Pennies Strategy. From there a sharp rally sent the SPX back to around 1939.50 before selling once again took the SPX into the close slightly lower at 1937.78. The important key to the close was the market staying above 1935 for the second day.
Advance Declines For June 16 2014
Volume picked up on Monday and new highs rose to 146 versus just 5 new lows. But just 49% of stocks were advancing while 48% were declining. Volume came in at 2.9 billion with 50% of the volume up and 49=8% down. Very much a sideways day for most stocks.
Market Direction Closings For June 16 2014
The S&P closed at 1937.78 up 1.62. The Dow closed at 16,781.01 up 5.27. The NASDAQ closed at 4321.11 up 10.45.
The Russell 2000 IWM ETF was up 56 cents or 0.48% to close at $116.15.
Market Direction Technical Indicators At The Close of June 16 2014
Let’s review the market direction technical indicators at the close of June 16 2014 on the S&P 500 and view the market direction outlook for June 17 2014.
I keep mentioning the same 4 key support levels night after night, but it is important to understand how to invest based on those support levels. So I will keep the same information in this section until there is a change. There are now four key support levels in the market. Long-term support is at 1750. If that level should break at this point, it would mean a significant correction would ensue. The second level of support is at 1775 which again is good support and if it broke would mean that the market direction would quickly collapse down to 1750. These two indicators are good values to use for longer-term trading. As long as stocks stay above these levels, there is no concern the markets will experience any kind of severe pullback. The 1775 and 1750 levels are both now below the 200 day exponential moving average (EMA).
The next two levels are at 1840 and 1870. At this point with the S&P above 1900, any pull back to 1870 would be a signal to pick up short instruments like the SDOW or SQQQ ETFs or spy put options. If 1870 were breached it would mean a further break lower to at least the 1840 level and for investors it would be a quick and easy trade to pick up short products to enjoy some profits down to 1840. If 1840 were to break at this point it would mean to roll any at the money puts lower and roll down covered calls but only if 1840 were to break. Between 1840 and 1775 there is very little to no support.
My outlook for a pull-back is unchanged. I still expect to see the market test to find support at some point over the summer months and with no support in place except at 1870, I believe the market may try to build support at 1919 or between 1919 and 1870. Unless the market can break through 1870 I see no reason to curtail my trading activity.
The action over the past three days is suggesting that a support base may be attempted at the 1930 to 1935 level. It is too early to predict whether this will succeed or even what valuation is the more probable, but there are signs investors are unwilling to sell stocks much lower at present. Should the Iraq situation improve and oil and gold pull back from recent highs, we could see the market direction mount another challenge to the all-time highs. At the same time further escalation of Iraq fighting or involvement by the US military will probably be negative for stocks.
For Momentum I am using the 10 period. Momentum has been the best indicator over the past five months, replacing MACD as the most accurate indicator. Momentum is positive but has declined significantly over the past several days. Still though it is trending sideways which is bullish.
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 buy signal on May 23. The MACD signal today turned negative. While it is a weak sell signal, it is nonetheless a sell signal. We need to see a stronger sell signal tomorrow to confirm today’s sell signal.
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 continuing positive but is no longer overbought.
Rate Of Change is set for a 21 period. The rate of change remains positive and is still supporting the recent break out of the S&P above 1900. The readings continue to stay strong for the rate of change indicating investors are buying stocks with fresh capital.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling market direction down again today and it is overbought.
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 overbought.
Market Direction Outlook And Strategy for June 17 2014
Today at the close we have three technical indicators pointing to down for stocks. As well he have a sell signal from MACD. The move by MACD to turn negative while not unexpected is disappointing for those investors looking for stocks to move significantly higher at the moment.
Those technical indicators that are positive have mixed signals with Rate Of Change continuing to show investors are buying stocks at present with fresh capital as they prepare for stocks to move higher.
At the present time there is no change in my trading. I am continuing to trade but staying far enough out to assist in the event that stocks pull back somewhat. There are no signals or signs that the market is on the verge of a major correction. Quite the opposite actually. It still looks like this period of weakness is just that, weakness. At present the market direction looks to be trying to consolidate recent gains.
For Tuesday there is still some weakness with stocks and now with the technical indicators split and a sell signal from MACD that has yet to be confirmed, we could see stocks drift sideways but move up or down slightly. We should though keep an eye on the Iraq fighting as well as any escalation of tensions in the Ukraine. These two events could push stocks lower. Today’s movement while good to see did not confirm a change in trend back to higher. The weakness in stocks is showing up within the technical indicators with 3 now pointing to more downside for stocks. The bias is probably more to the downside than up for Tuesday.
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