The market direction outlook for Thursday was split between what the Market Direction Technical Indicators were say, which was down, and what I felt the rally from Wednesday afternoon was saying, which was the start of a bounce. In the end the market direction technical indicators won out again as the market direction continued lower.
Economic Numbers
The economic numbers coming in today were positive. They were also strong enough that it spooked investors who fear the Fed will begin scaling back Quantitative Easing in December. Basically the fear is less money printing means lower stock valuations. No one knows for sure because this type of Quantitative Easing programs have never been tried or lasted this long. It is the same old case of what investors do not know, they fear.
The Weekly Initial Unemployment Insurance Claims for the last week came in lower than expected at just below 300,000. The number though was low enough that investors worry that the unemployment numbers for Friday will be strong enough for the Fed to begin tapering early. That didn’t help the market direction at all.
The GDP number came in much stronger than expected at 3.6% which once again worried investors that the Fed will pull back on Quantitative Easing early rather than later.
Last was the news that corporate profits are sitting at the highest growth rate since the firat quarter of 2012 at 8.8%. As a percentage of GDP, corporate profits came in at 10.8% which is among the best in more than 5 years.
Market Direction S&P 500 Intraday For Dec 5 2013
The one minute chart below shows the action for Dec 5. The mood of investors was negative all day. The morning lows were taken out later in the day and the market direction spent the day grinding lower. A rally into the close fizzled and the S&P closed just off the lows for the day. The rally from late yesterday had no follow through of any kind today. The economic numbers were strong enough that investors failed to have any interest in pushing stocks higher.
Five Down Days The Dow
After five days of selling on the Dow, the index is down just 1.75% after having lost 282.85 since the all-time high set on Nov 29. Yesterday actually saw a lower intraday low than today. The way the media is painting the picture though is that we are tumbling lower, which is not the case. The last 5 days have not been overly dramatic and if anything they continue to show investor nervousness and nothing much else. A lot of the selling has also been profit taking especially on the part of fund managers who are trying to lock in gains for the year-end. Today’s action actually was more sideways than down for the Dow. With the Dow no very oversold a bounce may be imminent depending on the jobs numbers on Dec 6.
Advance Declines For Dec 5 2013
Declining issues outpaced advancing issues by the same margin as Wednesday with 64% declining versus 33% advancing. The new highs were at 62 but the new lows were at 148. Neither the new highs or new lows are dramatic enough to cause concern. The new lows are slowly creeping up but any sort of catalyst will turn stocks back up quickly.
Market Direction Closing For Dec 5 2013
The S&P 500 closed at 1,785.03 down 7.78. The Dow closed at 15,821.51 down 68.26. The NASDAQ closed at 4033.16 down 4.84. The NASDAQ remains the stronger of the three indexes at this point in the correction.
IWM ETF Pattern
The IWM ETF closed at $111.61 up just a few pennies, but more importantly, the ETF closed above the Middle Bollinger Band and the intraday low today was higher than yesterday’s intraday low. You can see the action in the daily chart below. Volume today was down slightly but most of the volume was positive as investors moved back into buying the ETF.
Market Direction Technical Indicators At The Close of Dec 5 2013
Let’s review the market direction technical indicators at the close of Dec 5 2013 on the S&P 500 and view the market direction outlook for Dec 6 2013.
The most important support line in the S&P 500 at this time in the ongoing rally remains 1750. That support line is holding the market direction up at present and that has not changed. While the S&P is now down below 1800 for yet another day you can see that the movement is more sideways today with yesterday actually having the lower intraday low. The market wants to move back up but investors are nervous ahead of the unemployment numbers for Friday.
For Momentum I am using the 10 period. Momentum is still positive for yet another day. Interesting how the market is moving lower but momentum just won’t turn negative. It continues to point to an underlying strength in the market direction higher.
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 sell signal to the downside was higher yet again today.
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 bounced back higher yesterday in the afternoon rally but today it turned back negative.
Rate Of Change is set for a 21 period. The Rate Of Change is still positive but took a big hit today as investors were reluctant to commit to buying.
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.
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 the market direction is down.
Market Direction Outlook And Strategy for Dec 6 2013
Tomorrow almost everything hinges on the jobs numbers. If the numbers are decent the market will probably move lower. Certainly the technical indicators are pointing to another down day for Friday. If the jobs numbers are just “so-so” then we should see stocks stabilize and move higher.
Overall I have not changed my strategy of selling puts. I am using slightly less capital when I do see a trade appear but I am jumping in quickly when there is the chance of a good Put Selling opportunities. Today I did Microsoft Stock, JP Morgan Chase Stock and AT&T Stock.
Tomorrow I will be up and working right from the market open. I have no personal outlook on the market direction. I do believe this is a slight correction and I am obviously not concerned since I am busy selling puts on my favorite stocks.
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