The market direction outlook for Thursday was for stocks to remain stalled. Last night I wrote that an interest rate cut by the ECB could jump the market direction higher but that overall the momentum up had stalled. What we saw today was what a stalled market looks like. Yesterday the market jumped at the open on the news of a possible ceasefire in Ukraine but in the end investors gave back all the gains. Today, stocks jumped on the ECB decision to cut rates further and apply more stimulus to Europe but that was given back during the day and the markets closed lower.
SPX Market Direction Intraday 8 Day Chart
If we look at the 8 day chart you can see that basically the market is going nowhere. While there is a pattern of rising tops, we are not really seeing a similar rising bottoms pattern. Instead on Tuesday and again today we saw the SPX fall back to the 1994.85 level and then push back to close above it. Basically stocks are holding about 1994 but are having trouble holding about 2000. A big part of the problem is the lack of support. The rise has been dramatic since May 23 but there is very little support at present levels. However as long as the 1994 level holds and we do not set new lows, the market will be fine but I believe the chance for the market to break through 1994 and then 1990 is higher now than it was two weeks ago. The market direction up must get moving and stabilize around 2000 to be able to push decisively higher and that is not happening.
SPX Market Direction Intraday 8 Day Chart
Advance Declines For Sept 4 2014
Volume finally picked up a bit today reaching almost 3.1 billion shares. While this is still far below normal, it is nice to see some additional volume. What we did see today though was 60% of volume was to the downside and 28 new lows were made, the most in a couple of weeks. New highs came in at 154 which is still healthy, but the new lows are growing.
Market Direction Closings For Sept 4 2014
The S&P closed at 1997.65 down 3.07. The Dow closed at 17,069.58 down 8.70. The NASDAQ closed at 4562.29 down 10.28
The Russell 2000 IWM ETF fell 45 cents to close at 116.01.
Market Direction Technical Indicators At The Close of Sept 4 2014
Let’s review the market direction technical indicators at the close of Sept 4 2014 on the S&P 500 and view the market direction outlook for Sept 5 2014.
Market Direction Technical Analysis for Sep 04 2014
Stock Chart Comments: Today’s selling was stronger than yesterday. The fact that the market jumped at the outset and then pulled back as it did yesterday is a clear signal that the buy the dip strategy may be about to end. The S&P closed once more below 2000, unable to hold above it. The market direction looks set to change.
The most important aspect of the present market is still the 1975 level. However if the market direction breaks lower and pushed through 1990 then the chance of it falling to 1975 is high.
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 but continues to weaken.
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 still today.
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 no longer overbought and fell back strongly today. It is still positive but that could change by tomorrow.
Rate of Change: Rate Of Change is set for a 21 period. Today the Rate Of Change pulled back a bit but the reading is strongly positive and moving higher. The rise in the rate of change seems to be indicating that the market direction will shift to the downside.
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 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 5 2014
Technically here are signs that the market direction up is stalled and needs to pullback to rebuild momentum to try to push above and hold above the 2000 valuation. All the indicators are losing strength and the Slow Stochastic and Fast Stochastic are both signaling down for stocks. The Rate Of Change has risen and is signaling a change is about to happen. That could be the signal that stocks are set to move lower.
For Friday we could see another attempt to move higher but technically indicators are showing a weak day and a move lower for stocks by the end of the day.
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