The market direction outlook for Friday was for markets to remain weak in the morning and then end with a positive close. Much of the day though was spent moving more sideways than up or down. Capital Economics on Friday released a report indicating that with “stock valuations now close to historical norms, the case for similar equity price gains going forward has diminished.” They also mentioned energy stocks indicating “Moreover, we suspect that some of the recent gains in the energy sector are overdone.” While reports such as that one continue to keep investors nervous, the indexes still continue to make historic new highs. Meanwhile this weekend reports from China show that manufacturing is back expanding. This promises to be an interesting week for stocks as we near the end of the month and the start of the next quarterly earnings in early July.
Market Direction S&P Intraday Chart June 20 2014
Friday’s intraday chart below is set for 1 minute. The rise at the open stalled within a few minutes and the market drifted sideways then higher and then pulled back by 10:30 to 1961. Selling was not heavy and a rally quickly followed that pushed the market to almost 1964 before it fell back again to 1962 throughout the start of afternoon trading in what was a choppy session. By mid-afternoon though, investors were back buying and they pushed the S&P toward a close near 1963 on the day marking a decent week of gains for the S&P.
Advance Declines For June 20 2014
New highs continued to expand on Friday with 291 stocks setting new highs and just 15 setting new lows. Advancing issues made up 56% of the volume on Friday with 41% of stocks declining. Volume picked up on Friday reaching 4.4 billion shares trading hands. All of this continue to point to further advances for stocks.
Market Direction Closings For June 20 2014
The S&P closed at 1962.87 up 3.39. The Dow closed at 16,947.08 up 25.62. The NASDAQ closed at 4368.04 up 8.71.
The Russell 2000 IWM ETF was up 39 cents to close at $118.25
Market Direction Technical Indicators At The Close of June 20 2014
Let’s review the market direction technical indicators at the close of June 20 2014 on the S&P 500 and view the market direction outlook for June 23 2014.
Stock Chart Comments: There are no changes to the chart comments. There is a new light support level at 1930. This is very weak support but based on technical readings, there is some reason to expect light 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 to support my outlook but the summer is only beginning.. However the VIX Index closed at 10.85 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.
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 moving sideways.
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 buy signal on June 18. This buy signal is still in effect on Friday.
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 is again 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 with a reading of 3.72.
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 up for the fourth day and it is now extremely overbought.
Market Direction Outlook And Strategy for June 23 2014
The technical indicators are all pointing up and none are now weak. Among the technical indicators the weakest is MACD and it continues to grow in strength. The chance of any kind of serious pullback at this stage is slim. There would have to be a strong catalyst develop for a downside action to commence. Iraq does not appear to be the catalyst the bears have looked for and indeed on Friday, gold moved lower indicating a growing lack of concern among many investors.
For Monday market direction looks set to continue the advance. I have no change in my strategies being used and continue to commit capital to stocks. I had a lot of capital released on Friday with options expiry. That capital will be placed back to work this week as I see little in the way of warnings for any kind of pullback at this time. We could see some weakness right at the open but I see nothing that points to a lower close. Stocks should end the day on Monday, higher.
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