The market direction outlook for Tuesday was for the market to end just slightly lower than Monday. The rally on Monday was built on little else except an oversold condition and investor hope that the Fed will delay tapering until into 2014. Today was all about investors waiting for the Fed announcement which comes tomorrow.
All About The Fed Decision – My 2 Cents
The market direction was set to drift sideways as investors waited on the Fed comments on Wednesday. The question is will they taper in December or wait. My personal belief is they will wait for more signs that the economy is stable and in particular that there is some inflation. In my opinion (for what its worth), without core inflation the Fed cannot begin to unwind the Quantitative Easing programs without beginning a tightening of the economy. If just keeping interest rates at zero worked to stimulate the economy enough for expansion, the Fed would not have needed to extend the Quantitative Easing programs over the past two years. Obviously interest rates at zero is not going to drive the economy forward. The Fed needs inflation and without it, a tightening of the economy through a reduction of Quantitative Easing at this stage could curtail any chance of seeing inflation into the new year. My personal belief is that the Fed wants inflation back up bumping against 2% and that means keeping the liquidity in place. Full employment would go a long way toward bringing more inflation into the economy, but full employment means full-time well-paying jobs and not the part-time and contract jobs that seem to be swamping the employment opportunities.
On the other hand to begin slightly tapering by even perhaps 5 billion a month may be enough to test the waters so to speak and see what difference it could make. As well a very slight reduction in liquidity could tell the Fed what the reaction will be from both investors, lenders and in particular the economy. By reducing very slowly, the Fed could take months to years to try to keep the economy from tipping into deflation.
It is a tight rope trick for the Fed and at this point I think the consensus will be to wait just a bit longer. We will known tomorrow what the Fed is planning next.
Market Direction S&P 500 Intraday For Dec 17 2013
Market Direction action today can be seen in the chart below. In the morning stocks dropped from the outset but the first bit of selling didn’t break the 1781 level. This got some investors interested and they pushed stocks higher. When the push higher failed to return to the morning open, stocks drifted lower until around 10:40 when heavier selling entered. The S&P easily fell through 1780 and pushed down to 1777.05 by 11:30. This marked the low for the day and stocks recovered the 1780 level over the noon hour. Another rally in mid-afternoon still failed to break to a new high and the day ended with investors selling into the close but staying above 1780.
Advance Declines For Dec 17 2013
Decliners had a narrow edge on advancing issues with 52% declining and 44% advancing. New highs fell off today with 83 new highs versus 124 new lows.
Market Direction Closings For Dec 17 2013
The S&P closed at 1781.00 down 5.54. The Dow closed at 15,875.26 down 9.31. The NASDAQ closed at 4023.68 down 5.84.
The IWM ETF closed at 111.35 down just 0.16 cents.
You can see from today’s closing numbers and the slight losses that in general stocks were in a holding pattern awaiting Wednesday’s announcement from the Fed.
Market Direction Technical Indicators At The Close of Dec 17 2013
Let’s review the market direction technical indicators at the close of Dec 17 2013 on the S&P 500 and view the market direction outlook for Dec 18 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 was broken late last week but yesterday and again today the market has managed to hang on to the 1780 level.
For Momentum I am using the 10 period. Momentum has been the best indicator during this recent correction. Momentum is still negative today but is trending 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 weak sell signal on Friday Nov 29 when MACD was slightly negative. MACD moved up again today but only slightly with a reading of negative 4.16.
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 but moved up just slightly.
Rate Of Change is set for a 21 period. The Rate Of Change was negative again today and like so many of the other indicators it is sideways.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic issued a buy signal today and is pointing back to 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. Thursday’s sell signal from last week is still in effect. The Fast Stochastic signaled yesterday that the market direction was to be up. Today it failed to move higher and it now signaling another down day tomorrow.
Market Direction Outlook And Strategy for Dec 18 2013
There is little that can be said for today. The market direction has been stuck in neutral today as tomorrow is the Fed announcement. Many investors are hoping for some clarity from the Fed but I somehow think there could be some major disappointment tomorrow. I am not looking for any change which should propel stocks back up and prepare the market for a rally between Christmas and New Year’s. Once the so-called Santa Claus rally ends though, investors will be back wondering what is next.
At some point the Fed will have to taper back. The fear of course is that it will create a tightening to the economy at a time when the economy is still recovering.
There are a number of decent trades but I didn’t see anything that had to be acted on today. I took advantage of the sideways action to review my portfolio and prepare for a change either way tomorrow. If the Fed does begin tapering which I think is highly unlikely, stocks should pull back, even slightly. This will push up the VIX index calls which will be an opportunity for investors still holding any VIX Index calls. Unfortunately I do not have any left having sold near the end of last week for small but profitable returns.
The market direction portfolio was stopped out on Monday at the open and I have not entered any trades either way as the direction is stuck sideways until after the Fed announcement.
For investors who are uncomfortable with not knowing which way the Fed may act, staying to the sidelines is definitely a strategy worth considering. There are always opportunities in investing. If the Fed doesn’t begin tapering in December, which I think is the likely outcome, stocks will shoot up into the close. I have a list of some stocks I am watching such as AT&T to see if they jump with the market tomorrow afternoon. If they do I will sell puts out of the money on those stocks on my list.
But if the Fed does announcement a commencing of tapering in December or even January, stocks will move lower and I will probably wait a day or two before entering new positions, just to see how strong a negative reaction there might be.
For tomorrow then, it is all about the Fed again. The market direction is in Bernanke’s hands.
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