The market direction outlook for Friday was for stocks to trend sideways and then push higher in the afternoon to close slightly positive on the day. Overall though the gains were slight as investors remained wary of holding positions over the long weekend. Consumer spending fell slightly with a decline of 0.1 percent with most of the weakness seen in the auto sector which has been climbing steadily for months. The Chicago Purchasing Managers Index however was up to 64.3 in August from 56.5 in July showing a sharp improvement in manufacturing activity.
SPX Market Direction Intraday One Minute Chart
The opening on Friday saw the SPX jump to just above 2000 and then fall back to 1995 by 10:15. That marked the low for the day and the rest of the morning was spent pushing the SPX until to first 2000 and then 2003 by the noon hour. Almost most of the afternoon the market stayed around the 2000 level and then pushed to 2003 into the close. This close was at the high for the day and was the first close back above 2000 since Wedneday.
SPX Intraday one minute chart for Aug 29 2014
Advance Declines For August 29 2014
Volumeon Friday was again terrible with just 2.26 billion shares traded but with such light volume 71% of all volume was up and the market set 156 new highs and just 10 new lows. The light volume continues to move the markets easily and that may start to end as we enter September and many investors return from holidays.
Market Direction Closings For August 29 2014
The S&P closed at 2003.37 up 6.63. The Dow closed at 17,098.45 up 18.88. The NASDAQ closed at 4580.27 for the best showing among the indexes, up 22.58 for a gain of half a percent.
The Russell 2000 IWM ETF rose 65 cents to $116.56 for a gain of 0.56%.
Market Direction Technical Indicators At The Close of August 29 2014
Let’s review the market direction technical indicators at the close of August 29 2014 on the S&P 500 and view the market direction outlook for Sept 2 2014.
Market Direction Technical Analysis for Aug 29 2014
Stock Chart Comments: The most important aspect of the present market is still the 1975 level. Volume was very light for most of the final week of August but in general the market actually went nowhere.
1975, 1956 Support: Both are light support and both may be tested in coming days but for the time being stocks look set to continue to move higher. 1975 is the more significant valuation at this point.
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 12.7% 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 positive and continuing strong. Part of the reason for the strong readings is the lack of volume.
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 buy signal on Friday August 15. MACD remains positive but the readings are continuing to pullback slightly each day over the past week.
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 back up and overbought again.
Rate of Change: Rate Of Change is set for a 21 period. Today the Rate Of Change pushed higher with a reading of 1.53. This indicates that in the profit-taking today new money was coming into stocks and buyers were interested in picking up shares despite the market being at 2000. On Friday the rate of change indicator took another big jump. We could be setting up for a breakout to the upside or the signals may be warning of a break to the downside. At present I think it is best to consider the signal a possible break to the upside.
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 down to neutral. It remains extremely 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 signaling down for stocks and it too is extremely overbought.
Market Direction Outlook And Strategy for Sept 2 2014
Over the last week volume was incredibly poor. Usually poor volume can give markets wide swings but that was not the case over the last week. Instead the markets sat sideways and kept a slight bias up. The indicators are moderately bullish although there are signs of possible trouble being flashed by the stochastic indicators. In general though even the stochastic indicators are signaling that while stocks are being pressured to the downside, any movement lower is simply a dip trading opportunity.
The big concern has to be the Ukrainian crisis and Russia direct involvement. While President Obama’s rhetoric has not used the “invasion” word I doubt anyone does not understand what Russian President Putin’s objective is. Over the weekend reports of a possible breakup of Ukraine which would cede more territory to Russia seems to be making some headway. As an investor I can see that sanctions are not having a deterring effect on Putin, but they may lead to a recession in Europe or at the least further declines in GDP. Meanwhile the Russian ruble is at the lowest level in history as Europe and the US announced further sanctions against Russia. All of this most likely will push Russia into a deeper recession but does not seem to have any desired effect on forcing Russia out of Ukraine.
This week Ukraine will most likely dominant the market. Any hint of a settlement will send stocks higher quickly but at the same time, in general stocks are still in a bullish pattern which the technical indicators are confirming.
The outlook for Tuesday is for stocks to continue to try to push higher despite being overbought but watch Ukraine for any additional signals of more Russian involvement which will definitely tilt the market slightly lower.
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