Market Direction Morning Comments March 17 2014 – Catalysts

In my market direction comments last night I spoke about the possibility of catalysts to move the market direction on Monday and during the week. This morning there were four catalysts including the Federal Reserve helping to drive stocks higher. The first catalyst being the Crimea vote which drove up the Russian and many emerging markets overnight. Investors hope that with the vote in the Crimea over, tensions will fall back to finger-pointing and rhetoric and probable sanctions but in the end things will calm down. A lot of analysts felt that the Crimea vote would turn the US downturn back up and perhaps they are right. We will see how the market performs this week to try to get a clearer picture.

The second catalyst this morning is the manufacturing production numbers for February. Manufacturing production has risen the most in 6 months with a gain of 0.8 percent. This follows on the back of a revised 0.9 percent drop for January. Again economists point to the harsh winter as the probable cause. Strategist, Gennadiy Goldberg with TD Securities, indicated that underlying demand was better than expected and is quoted as saying “The market got a little too pessimistic.”

The third catalyst came from the Federal Reserve Bank of New York, shows the general economic index rose 5.6 this month on the back of February’s 4.5 indicating new orders increasing and no slump in sight. As well the Fed reported that capacity utilization increased to 78.8 percent in February from 78.6 percent in January showing that the economy is continuing to expand.

The fourth catalyst was motor vehicle output which rose 4.8 percent in February after a 5.2 percent drop in January. Auto assemblies increased in February to an 11.4 million annual pace from 10.6 million just a month earlier and factory output excluding vehicles and parts rose 0.5 percent in February as auto dealers are offering more discounts to try to move inventory and dealers reported sales improvements across most models.

So here we are again, after several days of bad news, suddenly some good news being released all at once. Interesting how this continues to occur once we see large dips in overall market direction but I am not a conspiracy theorist, just an investor who ponders how these reports manage to get released all at the same time.

Market Direction S&P chart Intraday March 17 2014

Let’s look at the market direction intraday for the S&P to see what has been happening. Within minutes of the open the market direction had pushed above the 1840 support level and reached 1851. With just a minute rest the market then pushed to 1860 and within a little over half an hour it pushed above 1860. From there the market drifted back lower until around 11:40 when it reach around the 1853.50 level. The market direction today remains up as long as it closes at or above 1851.

Employment Trend

Last week’s Weekly Initial Unemployment Insurance Claims came in better than expected and lower than expected. The market snap back this morning which may in fact be more technical than anything else still shows how valuable the Weekly Initial Unemployment Insurance Claims is as a market timing system. I have still never witnessed a collapse in the market when the Weekly Initial Unemployment Insurance Claims numbers come in well below 350,000 as they did on Thursday last week.

Outlook Into The Afternoon

Much of the bounce back today is the bounce that was expected on Friday after Thursday’s big sell-off. This is also why I did not buy into the VIX Index call options as they rose simply because the cost was too high considering that many indicators pointed to a bounce back of a technical nature after such heavy selling.

The goal for the S&P now is to close at or above the 1851 level which was the first early morning high today. That will begin to peak investor interest. If the S&P closes at or above 1851 today, many investors will consider Friday’s late day plunge to just below 1840 and then a close back up above it, as a successful test of support and proof that the 1840 level can hold the S&P up. That should bring in buyers. The close today will be interesting.