For Monday the market direction outlook was for stocks to jostle for position and investors to fight an uphill battle as they try to retake the August 2014 market dip low of 1905. The Dow was damaged by the plunge in IBM. A plunge I am expecting will be partly recovered later this week. That will be a time to possibly consider some naked calls or credit call spreads, but not now. Today was all about the IBM plunge which shook the Dow. You never want to sell naked calls in a plunge. You want to look to the rally before selling naked calls and I am expecting a rebound rally attempt as early as Tuesday.
Meanwhile the S&P performed well, moving up 17.25 points or 0.91% as it covers the broader market.
SPX Market Direction Intraday 1 Minute Chart
You can see that on Monday there was struggling in the morning as stocks fought to stay above Friday’s close and break through 1890. In the early afternoon buyers stepped back in aware that 1890 was holding and moved the market to close right near the highs of the day at 1904.01 and within a point of the August market pullback lows.
Market Direction intraday for Oct 20 2014
Advance Declines For Oct 20 2014
Volume dropped back today reaching just 3.3 billion shares almost half of last Wednesday’s plunge volume. 72% of stocks were advancing on the SPX versus just 25% declining. There were just 29 new lows and 35 new highs. Today was bullish but still smacks of a rebound rally. We need to see new highs back in the 150 range for this rally to turn back to an uptrend.
Market Direction Closings For Oct 20 2014
The S&P closed at 1904.01 up 17.25. The Dow closed at 16,399.67 up 19.26. The NASDAQ closed at 4316.07 up 57.64.
The Russell 2000 IWM ETF closed back up above $108 on Monday at $108.74 gaining 1.17% on the day.
Market Direction Technical Indicators At The Close of Oct 20 2014
Let’s review the market direction technical indicators at the close of Oct 20 2014 on the S&P 500 and view the market direction outlook for Oct 21 2014.
Market Direction Technical Analysis for Oct 20 2014
Stock Chart Comments: The most important event today was the movement of the SPX back to the 1904 level to recapture the 200 day EMA. The decline of IBM while definitely hindering the Dow did not affect investor sentiment for the broader market. The 20 day SMA is still falling but the 50 day EMA is moving sideways and is not giving any indication that it will fall further and cross down and over the 100 day EMA.
Strong Support Levels are at 1870 and 1840. Both levels are strong enough to delay the market falling. The next level of resistance is 1930 for the SPX.
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 at this time.
Momentum: For Momentum I am using the 10 period. Momentum has been the best indicator, replacing MACD as the most accurate indicator. Momentum is negative and oversold but trying to push back higher.
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 Sept 10. MACD is negative but starting to rise.
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 positive today and rising.
Rate of Change: Rate Of Change is set for a 21 period. Today the rate of change is still oversold but is turning up. The change of trend signal is in place and is now gaining momentum. This could signal a move higher.
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 signaling market direction is up and it had issued a buy signal on Wednesday.
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 still signaling up and it too had a buy signal on Wednesday.
Market Direction Outlook And Strategy for Oct 21 2014
Stocks remain at a pivotal moment. If IBM had not hurt the Dow, the broader market including the 30 Dow stocks might have ended up even higher and the SPX might have retaken 1905.
While everything still points to a bounce the market needs to recover more than 50% of the drop in order to prove that this is more than a bounce. At the present time everything still points to a bounce. Tomorrow the market will face the resistance level at 1905 which is the low from the August pullback and once taken it will move back above the 200 day exponential moving average (EMA).
Rebound Rally – Day 4 – UpHill Battle Continues
On Friday the rally pointed to the rebound rally ending either Monday or Tuesday. Little has changed and a sideways day tomorrow will NOT mean this rally is over. This is why I sell puts against stocks I would own. In the downturn no matter how severe there were always opportunities. In this rebound rally my positions are rapidly reaching a point where I can close many of them for profits and wait to see if the rally can hold.
Tuesday I am expecting the market to be weak in the early morning and then break through 1905. The close could see the market above 1910. I will reassess tomorrow during the day. I did two trading for pennies strategy trades. I will be doing more on Tuesday while the uphill battle continues.
Once again, for those investors who are new to the Trading For Pennies Strategy here are some links in the USA Members section that discuss this compelling strategy. This is not a strategy for conservative investors and definitely only for active investors but returns can be stunning and capital in use is small. If you need input on your pennies trades send me an email with your entry times outcome and I’ll be happy to offer whatever suggestions I can. Today I spent much of the day answering emails from investors involved in the Trading For Pennies trades. For most is was an exceptional day especially with the morning sideways action and then the push higher into the close. Tomorrow could be equally profitable.
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Different Trading Platform Settings (Here are the settings used)
Trading For Pennies Trade Alerts (Trade alerts)
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