The market direction outlook for today was for stocks to return to weakness and move lower. Half a percent is fine but the selling on the Dow this morning was definitely overdone. The concern over Amazon sent the stock tumbling more than 12% with the stock falling to a morning low of $314.76.
With the stock opening at $317.30 after closing on Thursday at $358.61, investors had to have known the morning would be rough. The collapse of Amazon dragged down the Dow but also got investors selling out of positions in American Express Stock, Chevron Stock, Boeing Stock, XOM Stock and definitely Visa Stock.
The selling this morning shows just how nervous investors are.
S&P Market Direction – July 25 2014 Afternoon
Rather than looking at the one minute intraday chart let’s look at the bigger picture.
I have been talking about the various dips in the S&P over the past three months to explain how the top right now is setting up a different pattern. You can see that the pattern since the big drop of July 17 (last Thursday) is erratic. Investors are definitely nervous. While the Ukrainian crisis may have been the catalyst on July 17 to plunge stocks, the overbought condition and investor nervousness is what actually caused the market to drop as far as it did and then try to recover. But as in the past, a drop in the market as big as the one on July 17, often lasts longer technically than investors realize.
When an event like July 17 happens, the best thing investors can do is scale back a little bit on the positions they are trading to place slightly less capital at risk. Then draw the support line which you can see sits right at 1956. That 1956 level has held up pretty well since the end of June. Investors can then use that line to establish a criteria for their trading. As long as the 1956 line holds, investors can be assured the market is not going to sink. If the 1956 line breaks, then the market will definitely fall to test the 50 day simple moving average (SMA) which is around 1948 or only about 8 points lower.
You can see with the other indicators in the chart above that buy and large, nothing has changed as of today’s drop. All indicators are still positive except for MACD which continues to hang onto the sell signal which is flashed back on July 8. MACD signal is now weaker but it refuses to support the rally since July 8 and when you look at the chart above you can see that the Rate Of Change indicator is actually agreeing with MACD.
The Rate Of Change indicator is not negative but it is basically trending sideways with little spikes up and down but in general it is staying sideways. It is agreeing with MACD that the market trend since July 8 is actually more sideways than up or down.
Sideways Markets
Sideways markets can last a long time. The problem though is that each time there is a slightly larger dip such as July 17 or even today, investors jump in and take advantage of the “reduced” prices. Eventually though the dip buying is the wrong course of action and when these same investors realize it was a mistake, they flee which is what drives a normal pullback, deeper.
At present the sideways action is not a concern. But a break of 1956 would be.
Outlook Into The Close
Into the close the S&P looks like it may try to push back and close down perhaps 0.30%. In general though as long as it closes around 1975 or above, the trend up for next week should remain intact. A close at or below 1970 will probably set the market up for weakness to start the final week of July.
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