The selling on Friday was an overreaction in my opinion. Investors have been worried about when interest rates will rise and the non-farm payrolls unemployment report showing a rise to 295,000 new jobs in February versus the estimates 235,000 sent shivers through a lot of investors. The unemployment rate fell to 5.5% the lowest level in almost 7 years. A lot of investors and analysts felt that this constituted full employment which the Fed has indicated is one of the principal keys they are viewing as to when to raise interest rates. Few seems to notice that wage gains are poor and the majority of these jobs were once more in the government sectors from education to administrative. I believe Monday will see a bounce and we will hear more about where these jobs are being created along with wage gains.
Advance Decline for Mar 6 2015
Volume on Friday rose from 3.1 billion on Thursday to 3.86 billion. 82% of the volume was to the downside with just 17% to the upside. New lows however cam e in at just 50 while on Thursday they were 39. New highs fell to 45. While volume was definitely to the downside, the 50 new highs is not enough to pressure the market further on Monday for another dramatic plunge. Instead they point to an overreaction day.
The new highs on Monday will be an important indicator as to what direction stocks will be heading for much of the week. New highs must get back over 100 to give any hope of a sustained rally back from further selling.
Market Direction Closings For Mar 6 2015
The S&P closed at 2071.26 down 29.78. The Dow closed at 17,856.78 down 278.94. The NASDAQ closed at 4927.37 down 55.44.
Market Direction Technical Indicators At The Close of Mar 6 2015
Let’s review the market direction technical indicators at the close of Mar 6 2015 on the S&P 500 and view the market direction outlook for Mar 9 2015.
Market Direction Technical Analysis for Mar 6 2015
Stock Chart Comments:
The S&P collapsed quickly through the Middle Bollinger Band on Friday and closed just above the 50 day simple moving average (SMA) and off the lows of the day. But the bounce into the close was not very convincing.
The drop on Friday though did not create a new lower low in the market index yet. The market had been setting up for a possible Bollinger Bands Squeeze to commence mid-week this week, but that now looks like the drop on Friday ended any chance of a Bollinger Bands Squeeze forming. Technically the market broke the 2100 level which is important for the uptrend and the 2075 level. With the S&P just above the 50 day moving average, stocks will probably test it on Monday and then probably bounce up before moving lower.
Support and Resistance Levels:
These are the present support levels.
2100 is very light support. 2075 is light support. Below that is 2050 which is also light support. Stronger support is at 2000 which has repeatedly held the market up throughout each recent pullback. Weak support is at 1970. Stronger support is then at 1956.
1870 and 1840 are both levels with strong enough support to delay the market falling and should see a sideways action attempt while investors decide whether to sell or buy.
The other two support levels are 1775 and 1750. I have explained that these two are critical support for the present bull market. While 1775 is important it is 1750 that is the bottom line.
A break of 1750 would mark a severe correction from the most recent high. This 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 at present.
Momentum: For Momentum I am using the 10 period. Momentum was negative on Friday but considering how large the drop was, it was not overly negative and could have fallen further. This is another reason we may see a bounce on Monday.
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 weak sell signal on March 4 which was confirmed 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. In one day the Ultimate Oscillator moved from overbought and positive to negative.
Rate of Change: Rate Of Change is set for a 21 period. The Rate Of Change is choppy and turned lower again today. The rate of change had been warning for a couple of days that the trend up was in jeopardy. On Friday by the close it was still not confirming the move lower would continue but it did indicate with its reading of 1.46 that the trend up is probably over.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic tries to predict the market direction further out than just one day. The Slow Stochastic is signaling lower prices are ahead.
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 down for stocks as well.
Market Direction Outlook for Mar 9 2015
Technical indicators are not terribly oversold by any stretch but the move lower on Friday was large enough that a bounce back is common. Any bounce back however and I will buy more SDOW Ultra Bear ETF shares for further downside action. On Monday I am expecting a bounce to occur and then more selling. Stocks may try for a positive close on Monday but even a positive close will still mean that stocks are headed lower at present. Overall the indicators are pointing to lower prices for stocks on Monday.
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