The market direction outlook for Friday was based on the jobs numbers. The numbers that came in show some growth but were mediocre at best. Those are always the toughest numbers to judge and you can tell from the market direction during the day that investors had trouble judging them as well. Meanwhile analysts were split every which way as everything from dire predictions of a larger second leg down to those who predicted that the numbers are only going to get better from here and so will stocks.
This is the kind of market that is more typical than we saw last year. It is always the unknown entity that makes investing exciting and profitable if done properly. Last year just about any stock would do and I received a lot of emails from investors who were selling options against stocks I would never touch. But last year was easy. The market was up all year with only three corrections and only one was just over 7% and the other two not quite 5%. That is not a typical year. This year I think will require more work and consistent use of strategies to protect capital at risk and earn profits.
S&P Market Direction Intraday for Feb 7 2014
On Friday the market shot higher at the open as investors felt that the jobs numbers were poor enough that the Federal Reserve might delay further taper reductions. When analysts disagreed and felt the tapering would continue, investors pulled back and a low was put in around 10:30 at 1777.30. A second low about 15 minutes later was stopped at 1777.83. Investors saw this as a sign of strength and the market moved higher for the rest of the day. The S&P put on a strong showing closing up 1.33% and finishing near the highs for the day. The S&P is now easily within striking distance of 1800.
Dow Market Direction Intraday for Feb 7 2014
The Dow had a different move with a big jump at the open, a pull-back and then a second rally that was lower than the first. Investors began doubting the numbers and the Fed and the market fell back to 15625.50 almost turning negative. This was also around 10:30. Fifteen minutes later a second low was put in which was higher than the first low. From that point, investors moved back into stocks and pushed the Dow to close near the highs for the day.
Dow Market Direction Moving Averages
The Dow closed with another strong day and reached to end the day just below the 100 day moving average. The Dow put in a strong day again which is something which the market needed technically to support a move higher. Momentum is ready to turn positive on the Dow and MACD is turning back up. The Ultimate Oscillator ended the day positive on Friday. As well the Slow Stochastic and Fast Stochastic (not shown below) both ended the day with strong up signals.
The Dow is ready to push back above the 100 day exponential moving average (EMA). With Thursday and Friday both being strong it will not be surprising to see the Dow trend sideways on Monday although I am expecting a push higher either at the open or in the morning. Momentum continues to favor the Dow moving higher on Monday.
Advance Declines For Feb 7 2014
The advance decline ratio was once again strongly bullish with 75% of stocks advancing and 22% declining. There were just 81 new highs but also just 73 new lows. Momentum is continuing to shift to a move higher.
Market Direction Closings For Feb 7 2014
The S&P closed at 1797.02 up 23.59. The Dow closed at 15,794.08 up 165.55. The NASDAQ closed at 4125.86 up 68.74.
The IWM ETF closed up $1.24 to $110.75
Market Direction Technical Indicators At The Close of Feb 7 2014
Let’s review the market direction technical indicators at the close of Feb 7 2014 on the S&P 500 and view the market direction outlook for Feb 10 2014.
The 1750 level is holding the S&P up. Investors have done a good job of pushing this market back above 1750. Thursday’s close was just above the 100 day EMA. Friday’s close was moving toward the 50 day SMA. Momentum to the upside was stronger on Friday than on Thursday. With the market above 1770, it appears ready to take on 1780 on Monday.
For Momentum I am using the 10 period. Momentum has been the best indicator over the past two months, replacing MACD as the most accurate indicator. Momentum has turned back positive although just slightly. Momentum to the upside has been very strong. After two big up days it will not be surprising to see the S&P move more sideways on Monday however with momentum continuing to build back up the S&P does appear ready to push above the 1800 level.
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 Jan 8 2014 which was confirmed on Jan 9. MACD refused to turn positive since Jan 8. MACD remained strongly negative on Friday but continues to climb back. On Friday you can see in the chart that the readings are climbing as the MACD is starting to turn back up. Meanwhile the MACD histogram (grey bar chart being technical lines) is back climbing as well and appears ready to turn positive shortly.
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 continued to rise on Friday and is now back positive and pointing to higher prices this week.
Rate Of Change is set for a 21 period. The rate of change is still negative but continues to rise away from the oversold condition of earlier last week.
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 and it issued a buy on Thursday.
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 indicating that the market direction is up for the third day and it also issued a buy signal which helps to confirm the buy signal from the Slow Stochastic.
Market Direction Outlook And Strategy for Feb 10 2014
While the numbers were disappointing they were more mediocre than bad. As explained in Thursday’s market direction outlook for Friday, all the market needed was mediocre job numbers because momentum has shifted back to the upside. Momentum is strongly to the upside at present but of course after two days we can expect to see a return to some sideways action but with a bias to the upside.
The stochastic indicators are both signaling a strong move back to the upside. With all the other indicators in agreement as they rise from deeply oversold signals, two days of strong momentum is probably enough to break the worries of investors at least for a short while. This should see stocks push back higher but with the best two days move now behind us, it will be hard for stocks to do a repeat performance on Monday. I am expecting a sharp rally at the open and then a pullback and sideways action for much of the rest of the day.
The downside momentum appears broken and stocks are being picked up again. There is heavier resistance ahead for the S&P as it pushed back above 1800. This could see the market direction shift back to sideways. I will be buying back covered calls that I recently sold on longer-term positions I have. I will be continuing to do Put Selling whenever I see opportunities.
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