The outlook for today was for stocks to move lower. With the market direction down it is now extremely oversold, especially after yesterday’s sharp drop in the afternoon. This morning we are seeing stocks try to make a stand here at the 100 day exponential moving average (EMA).
Market Direction SPX Morning Chart
The morning is seeing investors picking up stocks that have been hammered over the past 10 trading days. The collapse back from the latest all-time high was not totally unexpected and there is always the chance that the market may try to use the 100 day moving average for the bounce back. The question will be whether this is just a bounce or the start of a bottoming process for a sustained move higher. 1919 is still the critical support level. The SPX needs to recover it, close above and hold it into next week.
The Market Direction Bounce
If we look at the past 10 days of the SPX, we get a much clearer picture of what is happening as well as what investors need to watch for to advise when to be placing trades to the upside and when to turn back to the downside. Using the 10 period simple moving average (SMA) and the 20 period exponential moving average (EMA) are among the best tools for looking at the chart of the SPX over a series of a few days. The chart below is 10 days so these two moving averages are ideal.
The chart is set for 30 minutes which again lines up well with the 10 and 20 period moving averages.
The sell signal of July 30 was the first sign that the market was going to pullback hard. This took the market direction in the SPX from 1980 down to 1930 and then 1920. From 1980, the 1920 level was a 3% drop which is typical of a strong pullback but does not set the market up for a severe correction. Volume needs to be higher for a more severe correction.
The first rebound rally of any significance for the moving averages was on August 5 and that was the first UP signal received. The rebound signal failed however and on the afternoon of August 5 the news that Russian forces were on Ukraine’s borders sent the market plunging.
You can see that since then the market has been trying to recover back to the 1930 support level which broke on the news of Russia’s potential invasion. On August 7 the 10 period almost managed to push above the 20 period to signal another rebound attempt, but that failed as well.
The attempt this morning has not yet pushed up the 10 period but you can see in the chart that it is absolutely essential that the SPX move above the 1919 level and then it must quickly recapture the 1930 level which will erase the losses from the drop on August 5. This will set the market direction for a chance to repair the damage done on August 5, regain some investor confidence and then try to move higher.
SPX Market Direction Outlook Into The Afternoon
This morning the volume is around 1 billion shares shortly before noon. While the majority of issues are rising at 69%, there are far more new lows than new highs which still indicates investors are cautious and considering this move higher strictly a bounce.
For the afternoon I am watching for the SPX to get back above 1919 and hold there. If it cannot, then the next move will be lower. At present there was always a change to the medium-term market trend outlook for members which can be viewed here.
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