The Market Direction outlook for Wednesday was for stocks to remain weak but with the market deeply oversold a bounce was possible. Instead we saw the US dollar continue to advance especially with the protest in Hong Kong continuing for another day. In the lunch hour period Dr. Doom, Nouriel Roubini was back discussing in a column the possibility of another crisis in markets thanks to everything from Syria to Ukraine to Hong Kong to the buoyancy of markets themselves. All of this, plus the unemployment report this Friday mixed with poor European growth plus poor numbers out of China was too much for many investors. They bailed out of stocks on Wednesday.
SPX Market Direction Intraday Oct 1 2014
Historically the first day of October tends to be volatile and today met that expectation. The morning opened weak with an immediate move lower. The rally back was also weak and ended by 11:00 AM without capturing the morning open. From there is decline was steady all afternoon until the final hour when investors stepped in and bought a few stocks to ease the SPX off the lows for the day into the close. All in all, it was another ugly day with a loss of 1.32% on the SPX.
SPX intraday Oct 1 2014
Advance Declines For Oct 1 2014
Volume moved still higher today with 4.2 billion shares traded as more investors continue to move out of stocks. 84% of all shares traded were moving lower. 74% of all stocks were declining and 254 new 52 week lows were made againSt just 16 new highs.
As I explained yesterday it is important to understand that the number of new lows is showing that many investors are moving money to the sidelines in anticipation of further declines. The so-called smart money is betting on further declines which depending on how you look at the market could be a contrarian reading.
Many investors have been emailing wondering how I saw the decline and why I did not feel the market would regain its footing. The best indicator over the past several days has been the advance decline ratio which continually pointed to a rising trend of new lows and rapidly declining new highs. While the technical indicators are always important, it was the advance decline ratio that advised me to move to the downside. When a market moves sideways, the advance decline ratio is always worth watching.
Market Direction Closings For Oct 1 2014
The S&P closed at 1946.16 down 26.13. The Dow closed at 16,804.71 down 238.19. The NASDAQ closed at 4,422.09 down 71.30 for a decline of 1.59%.
Market Direction Technical Indicators At The Close of Oct 1 2014
Let’s review the market direction technical indicators at the close of Oct 1 2014 on the S&P 500 and view the market direction outlook for Oct 2 2014.
Market Direction Technical Analysis for Oct 1 2014
Stock Chart Comments: The plunge today saw key support levels break as 1975 to 1956 all gave way to the massive selling. The SPX is now below the 100 day EMA and could easily challenge 1930 next.
1994 Support: The 1994 level is now resistance.
1975, 1956 Support: Both are light support. 1975 is the more significant valuation at this point and was easily broken through today. 1956 also broke through.
1930 Support: Light support is found at 1930.
Strong Support Levels are at 1870 and 1840 (no longer shown). At present I am not expecting any break of either of these levels. The strength of the decline today makes it quite possible the 1870 level will be reached.
The other two support levels not shown in the chart above 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 now the bottom line.
A break of 1750 would mark a severe correction of more than 13% 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 as there are no signs of any impending correction of that magnitude.
Momentum: For Momentum I am using the 10 period. Momentum has been the best indicator, replacing MACD as the most accurate indicator. Momentum remained negative 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 confirmed sell signal on Sept 10. MACD continued to strengthen to the downside today.
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 was negative again today and is falling toward oversold.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change was negative and continued to fall today but is not yet signaling a bounce up.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. As the Slow Stochastic tries to predict the market direction further out than just one day. The Slow Stochastic is giving a down signal and is oversold.
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 but is extremely oversold.
Market Direction Outlook And Strategy for Oct 2 2014
Today’s decline was solid all day. Investors were voting with their sell orders and volume picked up again today. Investors are quickly raising cash and closing positions. The technical indicators are definitely pointing to further weakness, but the problem now is that the past few days this week of selling has skewed the readings to be strongly negative. Instead the strong oversold condition could soon result in a rally back.
Technically all indicators point to further declines. Even the Fast Stochastic which is oversold, still has room to fall before it is so extreme that stocks should bounce. With the unemployment report on Friday, investors may stay sideways for now and wait for the Friday numbers. On Thursday we get the Weekly Initial Unemployment Insurance Claims which could also be a catalyst either way.
Right now though investors are back wanting to get out and while there is no panic selling you can see that the numbers each day are rising with the decline in stocks.
The case for a short-term bounce is despite the selling, quite strong. Markets are now down 3.8%. Another 1.2% might be in the cards for this week but overall right now, stocks are down just 78 points. While certainly not pleasant the market direction down could stall soon and turn up. But for tomorrow, the outlook remains, lower for stocks despite what I think could be a rally attempt to start off Thursday.
I believe that once the SPX hits a 5% correction there will be a significant bounce before more selling enters the fray. But for now, all signs still point to lower for Thursday.
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