In my market direction outlook for Friday I explained that I was expecting the same pattern of weakness and rallies we have been seeing for that week. I also indicated that I felt looking at the strength of rallies, the SPX looked ready to still try an assault on the 2000 level.
On Friday though we saw something we have not seen in a while. The market sold lower all day and this time did not bother to stop at 1990 but continually slid lower finally reaching a low of $1980.26. The SPX managed to push back in the last hour of trading as traders basically reposition themselves for Monday but the close was not overly bullish with a close at 1985.54.
Intraday 1 minute Market Direction chart for Sept 12 2014
Advance Declines For Sept 12 2014
Volume was higher on Friday with 3.2 billion shares traded marking the first day in a couple weeks that volumes are back above 3 billion shares traded. Down volume made up 71% of shares traded and for the first time in weeks new highs were just 38 and new lows were 54. This marks the first change in many weeks where new lows outpaced new highs.
Market Direction Closings For Sept 12 2014
The S&P closed at 1985.54 down 11.91. The Dow closed at 16,987.51 down 61.49 and back below 17000 once again. The NASDAQ closed at 4567.60 down 24.21.
The Russell 2000 IWM ETF moved down 1.06% to close at $115.37..
Market Direction Technical Indicators At The Close of Sept 12 2014
Let’s review the market direction technical indicators at the close of Sept 12 2014 on the S&P 500 and view the market direction outlook for Sept 15 2014.
Market Direction Technical Analysis for Sept 12 2014
Stock Chart Comments: Today’s main event was the ease with which the SPX fell through 1990 all the way down to almost break 1980 before recovering in the last hour to the 1985 level. This places the SPX below the Middle Bollinger Band once again and you can see the Bollinger Bands Squeeze continuing to form. While my original early guess was that the Bollinger Bands Squeeze could see the SPX push back and break to challenge the most recent all-time high, there are more indications now that the squeeze could pressure stocks to fall lower.
1994 and 1990 Level: 1994 and 1990 levels were easily broken through on Friday but not recovered.
1975, 1956 Support: Both are light support and both may be tested in coming days. 1975 is the more significant valuation at this point.
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 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 is negative but very close to turning positive although on Friday it dipped slightly.
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 which was confirmed on Sept 11 and once again on Sept 12.
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 but understandably dipped on Friday.
Rate of Change: Rate Of Change is set for a 21 period. On Friday the rate of change stayed positive but you can see the decline that is well underway.
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 lower. It is no longer 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 still signaling down and it is no longer overbought.
Market Direction Outlook And Strategy for Sept 15 2014
The technical indicators are turning more bearish. Four are negative and continuing to strengthen to the downside and 2 are positive but are pulling back. Neither of this is new however and all are continuing to indicate that stocks are under pressure and should continue to decline further.
This week the Fed comments are important. With October looming, investors have to contend with the end of Quantitative Easing and this will most likely generate further volatility for stocks. At the same time we are also facing the historical record of September which tends to be very weak for stocks. Finally we have the issue with Ukraine, Russia and the “tit for tat” sanctions. All of this is creating unknowns for investors and as we well know, unknowns do not tend to push stocks higher.
Still though the market is down just about 20 points from its all-time high which is basically not much. This really is a continuing period of weakness and still looks like consolidation of positions and not much else, but often it is the least of times that catches investors unprepared.
For that reason I am continuing to tread carefully here and as members know I have some positions which are geared to profit from further downside action. There is still a strong possibility that stocks could see 1975 before we see 2008.
For Monday then stocks look to remain weak but I believe at the outset of the week 1975 is the low side and 1994 the upside. Stocks may stay in this range until investors get the next Fed minutes later this week. For Monday expect rally attempts but I think weakness will continue to win out.
Monday should be ideal for the Trading For Pennies Strategy and I post to twitter during the day. Once we see the Fed notes, then we should get a better idea where stocks are heading. I am expecting the Fed will remain supportive.
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