As indicated in my market direction comments yesterday, it was important to understand that the trend was still up but the Ukrainian Crisis could either be a hiccup on the road higher or could escalate in which case the 1840 level would break and the market move lower. It appeared on and off yesterday that events could escalate but everything from the plunge of the Russian currency and their market to international pressure forced Putin to recall his troops from their “exercises”. This has led to the market direction rebounding strongly into new all-time highs for the S&P and the Dow to be up 200 points.
Market Direction S&P 500 1 minute morning chart
You can see the action in the one minute chart this morning. The market direction up was immediately overbought and a small dip at the opening was quickly bought into as well and pushed the overbought condition higher. You can see in the Fast Stochastic indicator attached to the bottom that the market direction is very overbought. This overbought condition should last the day but I am anticipating the S&P may drop back below the 1868 level and could reach down to 1864 which would be another opportunity to buy into the market direction again.
1840 Level Is Soft Support
After yesterday’s drop below 1840 and the quick recovery we can count on the 1840 level now as being soft support for the market. The longer the index stays above 1840, the stronger the support will be simply by the nature of how investors function. If the S&P stays around the 1860 to 1870 level for even a couple of weeks and every little dip is bought, investors then begin to perceive a move lower to around 1850 and then 1840 as “cheaper” prices and look upon such a larger dip as “bargain” pricing on many stocks. This is what will build additional support at the 1840 level.
Remember that events like the Ukrainian crisis can flare back up and pressure stocks again, so the next time analysts advise that problems like the Ukraine are “nothing to lose sleep overnight”, ignore their comments and keep watch for decent trading opportunities that such events can create.
The outlook into the afternoon is for stocks to remain strong although I am expecting a bit of a pullback from these very overbought conditions back to around or below the 1868 level.
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