The market direction outlook for Wednesday was for the market to drift sideways and then move higher with the Fed comments. This was actually a pretty easy call. Not only did the technical indicators in general point to higher prices but also despite the media pundits and their pessimism, I could not imagine Yellen saying anything different from what she did say. Basically the Fed plans to keep interest rates low for another couple of years. Any rise in rates will be slow and tapering will continue but at $10 billion, liquidity will obviously be with the stock market for some time yet.
Market Direction S&P Intraday Chart June 18 2014
The intraday chart for today is at 5 minutes. I wanted to show today’s chart in 5 minutes to show just how sideways the day was until the Fed comments and then the immediate reaction and move higher. What is interesting is how the market was already racing higher even before Yellen started to speak and answer questions. There was no mistakes this time from Yellen in her comments. She never strayed from her stance on an accommodative approach to the economy which translates into, to stocks. This made the push higher all the more pronounced.
Advance Declines For June 18 2014
There were 184 new highs on Wednesday and just 8 new lows. I am expecting to see over 200 new highs shortly and then possibly over 300 by next week. Advancing issues made up 70% of trades while just 26% of stocks were declining. Volume however was up just slightly to 3 billion shares but of that volume 80% was trading up.
Market Direction Closings For June 18 2014
The S&P closed at 1956.98 up 14.99. The Dow closed at 16,906.62 up 98.13. The NASDAQ closed at 4362.84 up 25.60.
The Russell 2000 IWM ETF was up 79 cents or 0.68% to close at $117.76.
Market Direction Technical Indicators At The Close of June 18 2014
Let’s review the market direction technical indicators at the close of June 18 2014 on the S&P 500 and view the market direction outlook for June 19 2014.
Stock Chart Comments: You can see in the stock chart that I have now added a new support level at 1930. This is very weak support but based on technical readings, there is some reason to expect some support at that level. Stocks traded hands regularly there for several days and each time the S&P dipped back to 1930, investors were busy buying. While a correction at this point would definitely wipe out 1930, it would still delay a pull-back.
Aside from 1930 the support levels are 1919 – which again is light support, 1870 which is strong support, 1840 also strong support. Those two support levels, 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 1820 at present.
I have repeatedly mentioned two other support levels, namely 1775 and 1750. Both are critical support levels. 1775 is important but 1750 is now the bottom line. A break of that 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 an anticipating as there are no signs of any impending correction.
My Pull-Back Outlook: I have been waiting for a pull-back this summer to between 1870 to 1919 and so far there have been very few signs but the summer is only beginning.. However the VIX Index closed at 10.61 and never in its history has the market made a top when the VIX Index was low. Shortly we will get second quarter earnings. If earnings are strong and beat estimates we may not see a pull-back until perhaps late summer. More on the VIX Index Call strategy will be in the members section tomorrow.
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 and following the Fed’s comments, momentum is back rising.
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 16 which was confirmed on June 17. Although the confirmation was weak it was still confirmed. Today however MACD moved back positive and issued a buy signal. That signal must also be confirmed by a stronger close tomorrow.
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 continuing positive and moving higher back toward being overbought.
Rate of Change: 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 and are rising indicating investors are continuing to buy stocks with fresh capital.
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. It is no longer 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 for the second day and it remains overbought.
Market Direction Outlook And Strategy for June 19 2014
Manipulation of stocks has many different faces. Whether knowingly or unknowingly, the Federal Reserve has a large impact on markets in general, bonds, stocks, commodities of all kinds, currencies and more. The comments today by Yellen continue to provide a very supportive and dovish stance toward stocks in general and that continues to push more investors into stocks and certainly is drawing more capital in.
Eventually the market will correct beyond dips and a pull-back but just how deep will depend on two factors, strength of support levels and catalysts to the downside. The end of bull markets start before most investors realize it but there are warning signals. Right now there are none worth mentioning. As long as moves higher have adequate support they can continue but at present 1930 has no real support for any market pull-back. This is important for investors to watch for. The market direction as it continues higher must develop strong support levels which we as investors can easily identify and rely upon. At present those strong support levels are down at 1870 and then 1840.
The second item will be a catalyst. Obviously the Iraq fighting is not going to hold the market back unless the US becomes more heavily involved. The same with the Ukraine. Unless these skirmishes and political discords escalate rapidly and expand, the market will continue to move higher. But it will, in the end, be a catalyst that will push stocks lower. This is what we as investors need to be aware of as we continue to risk capital in stocks at higher valuations. The warning signs will be there as long as we are watching.
For Thursday with the technical indicators pointing up, I am expecting good Weekly Initial Unemployment Insurance Claims numbers and a possible weak early morning but then a higher close.
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