The market direction outlook for today was for a continuation of the weakness from yesterday. The SPX is down 14 at 2:20 this afternoon for a loss of about 0.70%.
Factors Weighing On Investors
A number of factors weighed on investors this morning including retails sales that rose 0.3% in May rather than the expected 0.7%, even though April was revised from 01.% to 0.5%. Then there was the Weekly Initial Unemployment Insurance Claims which rose to 317,000 which was above the consensus for either no change or around 310,000. Still though this is not a disappointing number.
Meanwhile the fighting in Iraq has pushed up oil prices and gold and then the business inventories came in at 10:00 AM with an increase of 0.6 percent as business increase inventories in anticipation of more shoppers in the coming quarter.
Bulls Versus Bears
There was a lot of talk yesterday by analysts who were surprised that the markets did not close a lot lower. This may have rattled some investors but in general most investors seems convinced this is a short period of weakness before stocks move higher. The latest polls place the bullish sentiment at a full 50% with only 29% bearish and 20% neutral. While not the highest reading at 50% it is still high and as we know it is rare when the majority are correct.
S&P Daily Market Direction Intraday Chart
Today’s intraday one minute chart shows the from the outset the market has been in decline. Two small rally attempts both before and during the lunch hour failed and the second resulted in a lower high and lower low as the pull back into 1:00 PM broke the 1935 level. After a brief pause the S&P continued to move lower. Just like yesterday, there needs to be a value line for the market to pull back up to. Yesterday is was 1942 which the market recovered to. Today it is 1935.
Understanding Market Direction Intraday Valuation Points
I mentioned yesterday the 1942 level and now today the 1935 level. These are not support points but valuation points based on activity during the day. Yesterday the 1942 was the low point in the morning. Today the 1935 is the low morning point.
When stocks are in an uptrend you want to understand whether the pull back is just that, a pull back or whether it could turn into a correction. You then want to understand whether it is a full correction or simply a small correction. One of the ways to understand the market direction when a pull-back occurs is to look for the morning low and see if stocks can close back above it. When the index repeatedly moves back above the morning low into the close it is a sign of strength. It shows that investors are taking advantage of the dips to buy stocks. This is what pushes the market back up into the close.
As long as this happens, it is almost always a pull-back to consolidate and try to reach support levels.
However if the market continually closes below these valuation points then it is better to step aside, pick up some spy put options perhaps or consider the Ultra Short ETFs and then watch each day to see if the market continues to close below the morning low. The longer it does, the lower the market naturally is moving.
It’s a simple strategy but it is surprising how often it assists in telling you when to continue to be selling put options for example and when to pull back on capital in use because there may be more downside ahead than was first thought. This same strategy can assist in the selling of naked calls or credit call spreads for as long as the close keeps ending up below the morning low we can predict that stocks will keep falling and naked calls will continue to lose their value making them ideal for selling.
Market Direction Intraday Technical Outlook
Technically there is still not a lot of support in the market until we get down to 1870. However the market may try to build some support at 1919 which is just 10 points lower. I originally was looking for a pull-back to between 1897 and 1919 and at this stage I think that is still the most likely outcome but stocks can always surprise in either direction.
Momentum is still positive but pulling back again today.
MACD is still positive but has registered another sharp drop in the up signal.
The Ultimate Oscillator is not longer overbought.
I added in the rate of change to show how the pull back is continuing in stocks so is the movement in the rate of change. Investors are starting to pull back a bit here.
Intraday Market Direction Summary
As mentioned previously there is little support between where the SPX is now and the 1870 level. Still that does not mean the market direction up will not build support elsewhere. I still think the 1897 to 1919 area is the most likely candidate. For today I am obviously expecting a lower close. But it will be interesting to see if the SPX moves back above the 1935 level to signal that investors are still picking up stocks on the dips. I will update the entire market direction again tonight.
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