The outlook for Wednesday was for stocks to attempt a rally but then move lower into the close. Instead stocks staged a rally attempt despite disappointing GDP numbers that showed a large contraction in the US economy for the latest quarter. Most investors looked upon the contraction as being “in the past” and felt it was old news. This same outlook is being held by the majority of European investors who despite contractions to European economies as well as deflationary overtones, continue to keep markets near record highs. Let’s take a look at the intraday action first and then the technical indicators.
Market Direction S&P Intraday Chart June 25 2014
The one minute chart below a steady recovery pattern for the day on Wednesday. Stocks rallied in the morning and when no selling emerged they move higher by steps with each step taking the market direction up. This is not a typical rally back but instead shows that investors are convinced that the selling on Monday and Tuesday are not of concern. Each “step” in today’s rally was not met by selling which is what drives investors to continue to buy stocks. The S&P closed almost at the high for the day and back above 1956. If you recall the afternoon intraday comments from yesterday, I indicated that to keep the rally alive the S&P needed to close back above 1956. This occurred today which should set the market up for another attempt to push higher.
Advance Declines For June 25 2014
The number of stocks making new 52 weeks highs fell to 134 on Wednesday the lowest number this week. New lows came in at just 22. Volume was almost identical to Tuesday with 3.1 billion shares traded although 67% of issues were advancing while 32% were declining. While these numbers may look a bit weak based on the declining new highs, there remains underlying strength which we have seen since the start of the year. Despite the pullback in February, stocks have remains bullish continuously and once again today they still show that bullish sentiment. This has to be frustrating to all the bears who cannot understand how this market can manage to hang on and keep creeping higher.
Market Direction Closings For June 25 2014
The S&P closed at 1959.53 up 9.55. The Dow closed at 16,867.51 up 49.38. The NASDAQ closed at 4379.76 up 29.40.
The Russell 2000 IWM ETF closed up $0.99 to $117.75.
Market Direction Technical Indicators At The Close of June 25 2014
Let’s review the market direction technical indicators at the close of June 25 2014 on the S&P 500 and view the market direction outlook for June 26 2014.
Stock Chart Comments: Yesterday’s drop set the S&P up to retest the 1930 level for support. Today though the market decided to turn around and try to push back up. In doing so, it closed above 1956. This is a pivotal point for the S&P and with the market above 1956, investors may try to push the markets higher on Thursday.
This would possibly negate the expected drop down to 1930 although in general it may only be delaying it.
At 1930 there is really no support yet but this is a chance for the S&P to try to establish some support. Personally I think any pullback will work its way down to 1919 fairly easy. That though is just a prediction which is not based on any technical indications at this time.
Instead at present, the market looks ready to tackle the 1930 level and then I can reassess the technical indicators.
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 Pullback Outlook: I have been waiting for a pull-back this summer to between 1870 to 1919 and so far Monday and Tuesday might be the best sign to date but today’s move back up above 1956 may mean the past two days have just been weakness while bigger investors consolidate positions.
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 back positive today.
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 24 and today MACD confirmed that sell signal.
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 still positive but no longer overbought as it trended sideways today.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change remains positive but is now trending sideways.
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 down and it is 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 too is now extremely overbought.
Market Direction Outlook And Strategy for June 26 2014
We have a mixed picture from the Market Direction Technical Analysis. MACD confirmed a down signal while the two stochastic indicators are both showing strength building to the downside. Meanwhile Momentum, Rate Of Change and Ultimate Oscillator are all still positive but none are strongly positive. In general then with a 3 to 3 outlook from the technical indicators we could see another move sideways for Thursday and then a move lower.
I am still not expecting anything major in the way of a downturn. At the same time I am not expecting anything major in the way of an upturn. So we are back to sideways with a bias slightly up or down. This is a rather ideal market for Put Selling plus other option strategies. There is however no rush in my opinion. Today I basically was watching the market and getting caught up on dozens of emails. It is not necessary to trade every day and today was one of those days where I like to step back and wait to see whether the bounce today has any staying power or whether we move lower on Thursday.
In general the technical indicators are undecided for the overall market direction. However looking at the 6 technical indicators, the market direction up appears weaker than the market direction lower. I would therefore think that the next move will be a slight pullback. However the push back above 1956 has investors buying more stocks again. For tomorrow then the outlook is sideways but with a slight bias to the downside.
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