My market direction outlook for Tuesday was for stocks to stay weak and close slightly lower. Basically I was looking for a repeat of Monday’s action. While the opening of the day on Tuesday certainly seemed to suggest that stocks would stay weak, the drop of the S&P to the Lower Bollinger Band seemed to be enough to drag investors back to stocks and by later afternoon they were busy buying stocks. Once 1994 was retaken, investors rushed in and volumes finally picked up slightly on the S&P as investors snapped up stocks that has been weak for the past several days. While most of these stocks were down only slightly, there were still down enough for investors to decide that they were cheap enough to pick up.
These kinds of rallies feed upon themselves as each point higher draws in more investors who fear they may be left behind in a recovery rally.
The S&P broke through 2000 at one point but volume was not enough to push higher and stocks stalled at 2000 for a gain of 3/4 of a percent.
Advance Declines For Sept 16 2014
Volume finally picked up with almost 3.2 billion shares traded. Still low by historic standards but better volume than investors have seen lately. 71% of the volume was to the upside but only 45 new highs were made and 74 new lows.
Market Direction Closings For Sept 16 2014
The S&P closed at 1998.98 up 14.85. The Dow closed at 17,131.97 up 100.83. The NASDAQ closed at 4552.76 up 33.86.
The Russell 2000 IWM ETF rose just 32 cents or 0.28% to close at $114.43.
Market Direction Technical Indicators At The Close of Sept 16 2014
Let’s review the market direction technical indicators at the close of Sept 16 2014 on the S&P 500 and view the market direction outlook for Sept 17 2014.
Market Direction Technical Analysis for Sept 16 2014
Stock Chart Comments: The main focus today was the move of the SPX to close back above the Middle Bollinger Band. The move was definitely emotional in nature as investors prepare for what they think will be good news from the Fed. The places the SPX into the Bollinger Bands Squeeze to the upside. It will be interesting to follow the outcome of this squeeze.
1994 and 1990 Level: 1994 and 1990 levels were easily broken recovered today.
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 despite today’s big move 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 confirmed sell signal on Sept 10. MACD continued to stay negative on Tuesday.
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 and trending higher.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change is still positive and trending sideways.
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 neutral. 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 also neutral and it is no longer overbought.
Market Direction Outlook And Strategy for Sept 17 2014
Today’s bounce was more emotional than anything else. Investors felt with stocks down to the Lower Bollinger Band, this could mark the end of the latest round of weakness ahead of the Fed minutes on Wednesday so they bought today to try to be early to a rally back higher.
Technically the market direction signals are mixed. The two stochastic indicators are neutral. Two indicators are negative and two are positive.
For Wednesday it is all about the Fed minutes which are released in the morning. While I am not expecting any real change you never know what the Fed might have within the notes that could send stocks one way or the other. In general though even bad news might get stocks to sell lower, but they will recover after a couple of days. I am though not expecting any kind of news that will stun investors and send stocks lower. I believe it will only be a matter of a day or two before the market makes new highs again.
For Wednesday then, it is all about the Fed.
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