The market direction outlook for Tuesday was for a possible consolidation but in general for stocks to move higher. A lot of reasons for the market direction moving higher are being tossed about. The Institute for Supply Management’s manufacturing index rose to 53.7 in March from 53.2 in February which shows a mild improvement. Personally I would have thought the number would have been better especially if the severe winter had curtailed a lot of factory output as indicated by many economists. As well the commerce department said construction spend rose 0.1 percent in February after falling 0.2 percent in January. I still think these numbers do little but show that the economy is continuing to crawl along. Overall I think if anything, the numbers show that the chance of interest rates wildlife moving up is just not going to happen. If that is the case then stocks will be the place to be. I wonder then what that means for gold? If we are not going to have runaway inflation, and not a military crisis in the Crimea then would gold be where I want my capital tied up? Personally I’ll stay with stocks, especially because I know I can profit in good or bad market conditions.
Overall I don’t think any of today’s numbers actually is the instigator of the rally. I think the market direction kept trying to push lower and failed so in the end the move turned back to up. Once that happened, more investors are flocking in although the rate of change indicator is not so sure this evening as we will see in a moment. On top of that is the Fed remains accommodating although not as much as in the past few years. Last I think investors are hoping for good quarterly earnings and they are getting a head start on the possibility that stocks will move higher. So, as I have said before, stocks are emotional investments for most people and right now emotions are running high to the upside.
Just remember that revenue matters. If the quarterly revenue numbers are poor then we will see weakness again so next week is pivotal for stocks.
Dow Market Direction 3 Month Chart To April 1 2014
This evening rather than looking at the customary intraday chart of the S&P which closed at a new high I want to instead look at the Dow for the past 3 months. The Dow has failed to break the December 31 high of 16588.25 but today it reached an intraday high of 16565.73 and is ready to break into new highs. Not to be overly concerned but I just want to point out a few things I have been watching with the Dow to keep investors aware of what could lie ahead. The first thing is that up until the December high the Dow was moving in classic pattern. Each pullback was higher than the previous pullback. That ended in late January and early February of this year when the Dow made a new lower low breaking through both the December low and the November low. Sometimes this does not matter but other times it can come back to haunt investors. That lower low could be part of the reason the Dow has been so poor to recover.
Momentum is another concern at this point. Momentum is positive but if you compare this rally against the recovery rally, you can see what a rally looks like from the aspect of momentum. Point A is momentum from the last rally. Point B is momentum to this rally. We need to see momentum rise to secure a solid leg up in the market direction. If you look at point C, you can see how the last rally faded as momentum eroded away. This is something worth keeping an eye on.
There has been a buy signal on Monday from MACD (Moving Average Convergence / Divergence indicator) which is good but it is a weak signal. Still though, today’s signal confirmed yesterday’s buy signal which is a good sign that the Dow will continue the rally further.
The Ultimate Oscillator is still negative but has climbed back from an oversold condition.
I wanted to include the above Dow chart just to indicate that using stop-losses on positions and keeping a close eye out to close positions early is definitely worthwhile. The rally looks like it has the potential to move to a new leg high in the bull market but the signs in the chart above all signal to stay cautious until we get stronger up signals. That means using stop-losses to guard against a pull back which I am not expecting but it is always worthwhile being prepared.
Advance Declines For April 1 2014
Advancing issues stayed ahead of declining issues on Tuesday. 70% of stocks advanced and 28% declined. New highs rose slightly to 186 from yesterday’s 151 but new lows were almost unchanged at 62. Today’s numbers continue to suggest that momentum is trying to build to the upside.
Market Direction Closings For April 1 2014
The S&P closed at 1885.52 up 13.18. The Dow closed at 16,532.61 up 74.95. The NASDAQ closed at 4268.04 up 69.06 points. Adding yesterday and today together the NASDAQ has added on 112 points in just two days. This is terrific but now a lot of tech stocks are into overbought condition.
The Russell 2000 ETF IWM rose $1.53 following yesterday’s $2.05 gain and closed at 117.87.
Market Direction Technical Indicators At The Close of April 1 2014
Let’s review the market direction technical indicators at the close of April 1 2014 on the S&P 500 and view the market direction outlook for April 2 2014.
The 1750 level has been holding the S&P up since the correction ended in early February. The 1840 level is now the second line of support and 1850 is the first line of support. The retesting of the 1850 level last week and the one day of a close just below 1850 has continued to build support at 1850 making it strong enough to hold up against a downturn for probably 2 or 3 days. Today saw the S&P make a new intraday high and the close was at a brand new closing high. All of this will help to build support for the 1850 level.
For Momentum I am using the 10 period. Momentum has been the best indicator over the past four months, replacing MACD as the most accurate indicator. On March 28 Momentum turned positive and is still positive today. The problem now is getting momentum to rise further to indicate a stronger leg up is in the process. Instead momentum is moving sideways.
For MACD Histogram, I am using the Fast Points set at 13, Slow Points at 26 and Smoothing at 9. MACD (Moving Averages Convergence / Divergence) issued a sell signal on Feb 13. MACD continues to stay negative but today it took a big jump higher and is now rapidly moving to the point where a buy signal might be generated in a day or two.
The Ultimate Oscillator settings are Period 1 is 5, Period 2 is 10, Period 3 is 15, Factor 1 is 4, Factor 2 is 2 and Factor 3 is 1. These are not the default settings but are the settings I use with the S&P 500 chart set for 1 to 3 months.
The Ultimate Oscillator is now neutral having climbed back out of negative.
Rate Of Change is set for a 21 period. The rate of change is positive today but turned back lower which is disappointing. It is reflecting some concern on the part of investors for the latest rally..
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling that the market direction is up.
For the Fast Stochastic I use the K period of 20 and D period of 5. These are not default settings but settings I set for the 1 to 3 month S&P 500 chart when it is set for daily. The Fast Stochastic is signaling that Wednesday the market direction will be higher. The Fast Stochastic is extremely overbought.
Market Direction Outlook And Strategy for April 2 2014
History repeated itself again today as April 1 was once again a strong up day for stocks. The technical indicators are reasonably bullish but again, not overly bullish. Momentum is positive but trending sideways. MACD is still negative but climbing. The Ultimate Oscillator is neutral. The Rate Of Change is trending lower but positive. Both stochastic indicators are pointing to market direction up but the Fast Stochastic is already extremely overbought. You can get the picture here. The strength to the upside is not overly strong which is somewhat disappointing after 3 days of rallying. Still though market direction is moving higher and that is the direction most investors want.
I am continuing to place trades but we could see some weakness on Wednesday. I am not looking for a negative close but stocks are overbought and the indicators are not strong enough to suggest a fourth day of strong gains. Instead they seem to be signaling that we could see a sideways day with perhaps some profit taking. Overall though I am expecting a positive close.
For Wednesday I am expecting stock to jump at the open but not as high as the past three days and then pull back. The afternoon I think looks like stocks could remains weak and try to rally but without a lot of success. I am expecting a positive close but not the strong finishes of the last two days. The outlook is for more new highs but tomorrow we could see a weaker advance.
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