The market direction outlook for Friday hinged on the jobs numbers. When the numbers came out the market hesitated only briefly and then with all the questions about just “how good really” were the numbers, a lot of investors bet that the Fed will still not tighten. The buying was strong enough that within minutes the market direction was a firm up for the day. My article Unemployment Numbers, Market Direction and Put Selling – Having A Map covered all the information about the unemployment numbers for Friday and the various analysts and their views. So let’s take a look at Friday’s action.
Market Direction S&P 500 Intraday For Dec 6 2013
The one minute chart below shows the action on the S&P 500 for Dec 6. Stocks shot up at the open and immediately broke through 1800. Within an hour the market had fallen back below 1800 three times and then by 10:40 with only light selling, investors bought into the market and pushed the direction firmly above 1800. By the mid-afternoon the market had been pushed to 1808 and then some selling entered. The selling drifted the S&P lower until about 3:40. Investors who had missed the rally decided that the late day push back toward 1800 was enough reason to buy at what they felt were “better” prices than earlier in the afternoon. Their buying pushed the market direction back to up and it closed at 1805 up over 1% for the day and just below the market high from the early afternoon.
The Bounce Back
The move higher in market direction on Friday was very much a knee jerk reaction to the unemployment numbers, the belief the Fed will not tighten yet and an oversold condition. Over the past couple of days I have written in the market direction outlooks that the market looked poised to bounce back and possibly big. This is why I had warned about selling covered calls and for those who did, to consider closing them depending on how close their were to being at the money.
If we look at the daily chart below you can see the reasons for the concern that the market direction would bounce back.
POINT A – November 20 marked the bounce from the last pull back as the market direction had moved lower over a period of three days. The candlestick at the close of Nov 20 shows a long tail at the top and bottom. The long tail at the bottom indicated that the market closed well off its lows.
POINT B – The rally off Nov 20 oversold condition was swift and short. It set a new high but then within three days the market direction was back drifting sideways again.
POINT C – This candlestick on Dec 4 is often indicative of an undecided market direction. It is a warning that the direction could be about to change. While the market direction outlook on Dec 4 was still for a move lower I warned that the direction could shift quickly back to up.
POINT D – The intraday low for Dec 4 was slightly higher than Point A but the market closed well off the intraday low, which is another bullish signal.
POINT E – Dec 5 saw a lower intraday high which I again wrote was a bullish signal that should be watched.
This is typical of a small correction in an ongoing strong bull rally. Friday’s action recovered a great deal of the lost ground and prepared the market for a move back up. You can also see from the points below what to watch for as the market moves forward. The next correction should not break the low from Point D.
Advance Declines For Dec 6 2013
Advancing issues swamped declining issues with 70% advancing versus 28% declining. The new highs were at 148 and new lows were at 129. The new highs has quickly rebounded and the new lows are dropping back off, another bullish sign.
Market Direction Closing For Dec 6 2013
The S&P 500 closed at 1,805.09 up 20.06 and back above 1800. The Dow closed at 16,020.20 up 198.69 and recapturing 16000. The NASDAQ closed at 4062.52 up 29.36. The NASDAQ remained the stronger of the three indexes during most of the short correction.
IWM ETF Pattern
The IWM ETF closed at $112.48 up 0.87 for a gain of .78%. Volume was 72.9 million shares of the IWM ETF on Friday and it was all buying pressure. This marked the biggest up volume day since June 3 and January 2. Investors eagerly bought the IWM ETF on Friday.
Market Direction Technical Indicators At The Close of Dec 6 2013
Let’s review the market direction technical indicators at the close of Dec 6 2013 on the S&P 500 and view the market direction outlook for Dec 9 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. Meanwhile the bounce back on Friday has established a second level of support at 1780 which while light, is nonetheless technically important. The market direction in this last little correction reached 1779.09 intraday on Dec 4 but still closed above 1780. Technically then 1780 was not broken by this correction. 1780 then becomes support.
For Momentum I am using the 10 period. Momentum has been the best indicator during this recent correction. It never wavered in its support as it kept signaling to investors that this correction was mild and would not last long. It stayed positive throughout the 5 days of selling and on Friday pushed up slightly.
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 is still negative although on Friday it started to turn back up, but the reading of negative 2.40 will need further moves higher to turn back positive.
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 into positive territory on Friday and is pointing to higher gains shortly.
Rate Of Change is set for a 21 period. The Rate Of Change remained positive throughout the market correction and on Friday it pushed back up indicating investors had returned to buy stocks.
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 but it was close to a buy signal on Friday.
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 up and issued a buy signal on Friday.
Market Direction Outlook And Strategy for Dec 9 2013
With the employment numbers behind the market and the Fed still ahead, investors are still a bit nervous going forward. Any notion that the Fed may begin tapering in December will pull the market direction back down but by how much is difficult to estimate. At the same time, if there is a resolution to the debt crisis before the deadline even approaches, stocks will definitely push higher.
In general according to the Trader’s Almanac, the best three months of the year are November, December and January. Of those three months, December continues to hold the record as having the best returns by the end of the month and most often. December this year started off slow but the correction was incredibly mild and was not fundamental but emotional in nature. I am expecting most of the remainder of the month will see the market direction move higher.
The market direction technical indicators are showing strength returning to the market direction move up. Four of the six indicators are showing a higher close for Monday. Only MACD and the Slow Stochastic need more confirmation.
For Monday I am expecting a move up at the outset and then selling which once contained will push the market direction higher again. I am not expecting a big move up from here as normally this size of a jump on Friday needs a day or two to be consolidated.
Investors want to buy stocks here and are willing to risk their capital to get into the market. A lot of the window dressing for the year-end has been finished or certainly stock positions have been reduced. The next move should be interesting to watch as normally it is corporate and private pension funds who make additional moves and adjustments into the year-end.
I am continuing with Put Selling and have posted a number of trades I am considering for Monday. This last little correction opened up a number of Put Selling opportunities and I am sure there will be more this week. I am unconcerned about the market direction as I believe the direction remains up.
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