The market direction outlook for Tuesday was for a mixed outlook. With stocks now at a crossroads they must either break through resistance now or they will turn back down lower. Analysts are generally split with most arguing against the rally that we have just seen. Meanwhile a sentiment poll of investors placed 28% at neutral and 24% at bearish. This means that almost half are still bullish for this week. But economically a number of indicators today still pointed to weakness in the economy. The New York region manufacturing data came in lower than expected and home builders confidence readings dropped to their lowest level in nine months. Again the weather was blamed by analysts. The weather in fact is being blamed for many of the lackluster reports being released and is a constant topic when analysts discuss stocks. But most seem to be unaware that stocks have again recovered almost all the latest decline, but to hear the analysts talk you would think that stocks are down 15%. .
S&P Market Direction for Feb 18 2014
Today’s 1 minute chart pattern for the market direction on the S&P followed much of what I had expected except for the close. The morning saw a quick sharp rally to 1842 and then a decline within the first 30 minutes that took stocks down to 1835 on the S&P. This lead to a rally back to the 1840 level first and then 1842. The rest of the afternoon stocks wandered between 1840 and 1842 finally closing at 1840.76 for a slight gain in the S&P.
Dow Market Direction for Feb 18 2014
The Dow followed the market direction outlook almost to the letter. The opening was weak and then a short rally tried to push higher. The rally failed and stocks fell lower by 10 AM which was the same time for the S&P to fall. From there the rest of the day was spent with the Dow trending sideways and finally closing lower on the day. Much of the Dow’s weakness today can be attributed to Coca Cola Stock’s plunge on disappointing revenue and earnings.
Advance Declines For Feb 18 2014
Still though despite the sideways action, 64% of stocks advanced and 33% declined. New highs though were the real surprise with 224 new highs and just 80 new lows.
Market Direction Closings For Feb 18 2014
The S&P closed at 18340.76 up 2.13. The Dow closed at 16130.40 down 23.99. The NASDAQ closed at 4272.78 up 28.76.
A lot of analysts keep pointing to the Russell 2000 as “non-participating” but I am not sure if they are seeing the same index as I am. The IWM ETF closed up $1.19 to $15.25 and is closing on the all-time high of $117.37. I don’t see any warning signs from the IWM ETF that it is not participating in the rally. Indeed the IWM Index is up 7.4% since hitting an intraday low of $107.27 on Feb 5. I think the index is doing just fine in this rally.
Market Direction Technical Indicators At The Close of Feb 18 2014
Let’s review the market direction technical indicators at the close of Feb 18 2014 on the S&P 500 and view the market direction outlook for Feb 19 2014.
The 1750 level is holding the S&P up. The market today moved to just above 1840 but resistance proved too strong and the S&P fell back to 1840.76 at the close. The problem the market direction has been experiencing is a lack of support above 1750. The move down to 1750 in the correction shows that 1750 can be held, but the move back up was swift and showed there is no other support level above the 1750 valuation. This makes it difficult for stocks to move higher as stocks need more support. If 1840 can hold this could become the next stepping stone for stocks. That remains a pretty big “if” simply because 1840 has been such strong resistance for months now..
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 today continued to climb which is a good sign for the market to build strength to push beyond 1840.
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 buy signal on Feb 11. The reading from MACD is higher again today which is also a good sign for stocks to move higher.
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 continues to be very overbought. This doesn’t mean the market direction will turn down immediately but it does indicate that the move up could stall at any time.
Rate Of Change is set for a 21 period. The rate of change finally broke free of being negative today and has moved into a neutral outlook. This is also a good sign for stocks as neutral is certainly better than negative.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling again today that the market direction remains up and it is very overbought.
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 also indicating that the market direction is up for the ninth day after issuing a buy signal on Feb 6. This is rare for the fast stochastic after 9 days. It too is signaling overbought.
Market Direction Outlook And Strategy for Feb 19 2014
The momentum within the rally back from the recent correction low has been steady and strong. The Fast Stochastic is now signaling for the 9th day in a row that stocks are still moving higher. This is extremely rare and could end at any time especially with the stochastic being extremely overbought. Aside from the stochastic, all the indicators are pointing to higher prices this week. MACD and momentum in general are pointing to higher valuations still to come.
Despite all of this, the market direction is sitting still at the crossroads. If it does not quickly break free of 1840 it will definitely stall here and begin to pull back, even if only slightly. Personally I do not see this happening. The advance decline ratio is strongly bullish and the number of new highs is once again rapidly outpacing new lows, which is another bullish sign.
There is not much else to say at this point in the rally. I am still looking for opportunities such as I found today in Coca Cola stock. I see nothing that worries me that stocks will tumble from here. I do see stocks sitting at a crossroad and in need of a stronger catalyst to push stocks higher.
For Wednesday then I see pretty much the same picture of the market moving sideways with a slight bias lower due to the extreme overbought nature of stocks in general..
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