The market direction outlook for Friday was split. The technical indicators predicted more downside on Friday and I predicted a bounce back, even a small one. For the first time in a while I was right and the technical indicators were also right to an extent. Still when you look at the market direction action on Friday you realize that there was a lot of downside activity, so I suppose the technical indicators actually win out again. The majority of the problem with the market direction moving up last week was worry over the Fed Quantitative Easing program being scaled back as early as December.
Whereas the original November employment report seemed to boost investor confidence that the Fed would not taper until into 2014, the mood shifted with news about a possible budget deal and the early indications that the debt ceiling would not be the same fiasco it has been twice before. That coupled with a few reports showing the economy not quite as weak as anticipated spooked investors. That has led to the present selling which dominated last week.
Market Direction S&P 500 Intraday For Dec 13 2013
The market direction on Friday exhibited all the signs of a market without buyers conviction. The morning high of 1780.92 was quickly lost as sellers entered within minutes of the open. The market collapsed to a low of 1772.67 breaking through the 1775 level. A recovery in the afternoon failed to break through 1778 and was followed by another collapse in the mid-afternoon back down to just below 1773 once more breaking 1775. This was followed with yet another attempt to recover which still failed at 1779 and ended with selling into the close and a close back to support at 1775.32. 1780 is now firm resistance as the S&P failed every time to break through that valuation.
Advance Declines For Dec 13 2013
With all the swings on Friday advancing issues actually had the upper hand with 55% rising versus 41% of issues falling. The declining issues though were strong at 169 stocks setting new 52 week lows and only 59 setting new highs.
Market Direction Closings For Dec 13 2013
The S&P closed at 1775.32 down just 0.18. The Dow was up closing at 15,755.36 up 15.93. The NASDAQ regained 4000 closing at 4000.98 up 2.57.
The IWM ETF closed at 110.20 up 0.36 cents on the day. None of the indexes though showed much buying conviction. It was all just a technical bounce and not a big one at that.
Market Direction Technical Indicators At The Close of Dec 13 2013
Let’s review the market direction technical indicators at the close of Dec 13 2013 on the S&P 500 and view the market direction outlook for Dec 16 2013.
The most important support line in the S&P 500 at this time in the ongoing rally is still 1750. That support line is holding the market direction up at present and that has not changed. 1780 however is definitely broken and now becomes resistance. 1775 was not really support and easily broke on Friday. The market must now recover 1780 to have any chance of keeping the rally intact.
For Momentum I am using the 10 period. Momentum has been the best indicator during this recent correction. On Friday momentum continued negative but turned more sideways rather than building lower. This could be because of the oversold condition of the market sell-off in general.
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 weak sell signal on Friday Nov 29 when MACD was slightly negative. The move on Friday is still lower and stronger than on Thursday. This advises that there is still more pressure to the downside.
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 negative and nearing oversold.
Rate Of Change is set for a 21 period. The Rate Of Change was negative on Friday for the second day.
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 down. Thursday’s sell signal is still active. The Slow Stochastic is signaling a much lower direction lies ahead for stocks. However it is also oversold which could be indicating that the next move in stocks is a continuation of Friday’s bounce attempt.
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. Thursday’s sell signal is still in effect. The Fast Stochastic is signaling a very strong oversold condition and the signal is trending sideways. The Fast Stochastic is now extremely oversold which could lead to a bounce, even if only slightly.
Market Direction Outlook And Strategy for Dec 16 2013
The market direction technical indicators continue to point to a lower day on Monday. The market direction down remains under pressure and while there are signals that the market is now oversold, there are not strong enough signs that a bigger bounce is possible. Therefore the move for Monday is still lower.
Some investors will look upon Friday as an indication that the 1775 level held and after being tested during the day and closing at 1775, the market direction is now ready to move higher. I don’t think this is actually the case. 1780 was better support than 1775 and the ease with which the market direction fell below 1775 showed how little if any support there was at 1775. The next level of support is down to 1750. The S&P must regain 1780. Any amount of good news will create the catalyst to push stocks back up.
The move on Friday though broke some technical support and while we could see investors try to regain some of that lost support my outlook is that without a Fed statement the market will continue lower on Monday.
My strategy changed somewhat last week as I am continuing to sell puts but I have reduced the number of put contracts being sold. I am taking advantage of the selling pressure to sell put options on those stocks that have been under strong pressure to the downside but making sure that I keep cash ready in case the market moves even lower. If the S&P continues lower on Monday or Tuesday it may reach the 50 day simple moving average (SMA) which is confirmation that a correction is definitely underway and the present rally is over. The uptrend however remains intact but in correction mode.
Monday should be interesting as there could be a bounce attempt that should fail as the Market Direction Technical Analysis shows that any bounce will be small at this stage until we hear from the Fed as to what they are anticipating next for their present Quantitative Easing program.
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