Four things impacted stocks today and kept many investors on the sidelines trying to decide whether stocks can push still higher. Lower than expected GDP troubled some investors. The Weekly Initial Unemployment Insurance Claims came in at just 1,000 higher than last week, placing claims at the lowest level since 1973. A third item today was the report showing a second straight month of declining pending home sales. Finally the Fed policy statement yesterday which indicated that a rate increase was very much a real possibility in December seemed to come back once again to haunt investors. Much of this might seem strange, especially when yesterday afternoon investors appeared at first concerned about the policy statement and sold stocks off and then decided that there was no way the Fed could increase rates in December and they turned around and bought into the market sending it to the highest level since the correction started.
But looking at the factors you can see that investors are simply mulling over the various reports and spent much of the day trying to decide if the weak GDP would delay a rate increase or if the numbers from the Weekly Initial Unemployment Insurance Claim would be enough to push the Fed to start raising rates. There is also the fact that next week the monthly unemployment rate is released and that is often the biggest market mover of them all. Another good jobs report for the month and it may be enough ammunition for the Fed to start firing up the interest rate cannon.
Market Direction Closings For Oct 29 2015
At the end of the day the indexes closed only modestly lower. The S&P closed at 2,089.41 down just 0.94. The DOW closed at 17,755.80 down 23.72. The NASDAQ closed at 5,074.27 down 21.42.
Advance Decline Numbers
Volume on Thursday fell back by 680 million shares traded to 4 billion shares. Of those shares 64% were traded lower and 35% higher. New lows fell back again to 84 and new highs also declined to 39. The new highs and new lows show that the market was pretty well moving sideways during the day on Thursday.
The NASDAQ had 102 new highs and 82 new lows.
The past week has continued to show poor advancing numbers as declining issues continue to keep challenging the new highs. While new highs are still above new lows they are not strong. We need to see daily new highs of 140 and higher otherwise the rally will fall apart soon. Yesterday was a nice bounce following the Fed policy statement but it cannot be sustained with such poor market breadth.
At the same time the numbers are not totally disappointing in that they seem to suggest more investors have moved back in stocks as we have seen far more 4 billion share days than prior weeks so this is a good sign that once stocks get a bit more stable and remove the overbought condition, stocks can push higher. My outlook remains that the S&P will break to 2100 shortly.
Market Direction Technical Indicators At The Close of Oct 29 2015
SPX Market Direction Technical Analysis for Oct 29 2015
Stock Chart Comments:
The S&P closed above the 200 day moving average for the sixth time today and is within 11 points of the 2100 level which is back to some major support for the market. Remember the 2100 level was tough for the market to hold prior to the August correction. The 20 day simple moving average (SMA) crossed the 100 day moving average issuing a second buy signal for the market.
The S&P today stayed above the 2075 level all day and did not challenge the 2080 level at all. In general the index still looks bullish.
Support and Resistance Levels:
These are the present support and resistance levels.
2100 was light support. Stocks have been unable to stay above this level and push higher on numerous occasions. It remains resistance.
2075 is light support. Below that is 2050 which is light support. Stronger support is at 2000 which had repeatedly held the market up throughout each pullback in January and February but failed under the waves of selling in the last correction. Stocks continue to have trouble holding the 2000 level.
Weak support is at 1970 while stronger support is at 1956 and technically it is more important than 1970 for the market. 1940 is light support. 1920 is now light support. 1900 is more symbolic than anything else.
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. So far 1870 has held the market up better than any of the other support levels aside from 2000 which held the market up for months before the collapse in August.
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 of 384.72 points or 18% from the all-time high of 2134.72. This would be the biggest correction since April 2012. A pull-back of that size would definitely stun investors and bring to question whether the bull market is finished.
Momentum: For momentum I use a 10 period when studying market direction. Momentum is positive and fell back slightly 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 buy signal on Friday Oct 2. That signal has lost strength since it was issued at the start of October, and today it is almost unchanged from yesterday.
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 very overbought.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change signal is positive and pulled back somewhat today. Still the reading is too high for much of a sustained move higher. There is almost always a pullback of some kind when the signal is this high.
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 deeply overbought but signaling up for Friday.
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 pointing up for stocks and is also very overbought.
Market Direction Outlook for Oct 30 2015
Historically the last trading day of October has been bullish for stocks far more often than bearish. This was the best October in four years for stocks but it started at the bottom of a correction. Overall the indexes are still stuck sideways from the start of the year.
History aside, the market remains very overbought but the technical indicators are still pointing higher for stocks. The S&P still looks ready to try to retake 2100 and I think it will happen tomorrow.
There are troubling signs of course as there is with every market. The biggest problem now is the advancing numbers are far too low to support any meaningful rally. Right now it looks like the market could punch its way to 2100, move slightly above it and then stall out and fall back.
But that’s just a prediction and no indicators are pointing to that happening. Instead they are signaling that the market is extremely overbought but stocks are still positioned to move up.
Weakness tomorrow then is another opportunity for setting up trades. I am not expecting much weakness though on Friday but an attempt to retake 2100 definitely seems to be on the agenda for Friday.
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