Two factors were blamed for the plunge in the market direction today. The first was the larger than expected drop in housing construction in January. The second was Fed comments about not curtailing the tapering even as the IMF warned about slowing world economies and Fed comments about interest rates moving higher in 2015. But while these certainly had an impact, the overbought nature of the market direction itself weighed heavily on stocks. The morning saw a dramatic rise as the S&P tried to break into a new all-time high only to collapse and close at the lows. Let’s take a look at the market direction intraday to start tonight’s market direction outlook.
S&P Market Direction for Feb 19 2014
Today’s 1 minute chart below show the early morning rally which by shortly after 10:00 AM was over. The S&P made another attempt to break free of 1840 and made an intraday high of 1847.49 before pulling back. Right at the noon hour the first round of selling hit the S&P and it quickly fell back below support. At this stage I bought Spy Put Options for an intraday lower. You could tell that the plunge back below 1840 was going to break the rally for today and probably for a few days. An attempt to move back above 1840 failed which is only to be expected. If the market could not hold the 1847.49 level then it was obvious that the first selling back below 1840 would place a cap on the market today. A second round of selling hit shortly at 2:00 PM and the market fell to close near the lows of the day.
Dow Market Direction for Feb 19 2014
The Dow 1 minute chart is even more dramatic. The morning saw a rally and a 90 point gain which then followed the same course as the S&P. The first round of selling was at noon and then a second round of selling shortly after 2:00 PM sent the market down over 180 points from the morning high to the closing low.
Advance Declines For Feb 19 2014
Today 63% of stocks were declining and 35% advancing. 174 stocks made new highs and 76 new lows. The market still has a bullish overtone but that could shift quickly if today’s selling builds momentum.
Market Direction Closings For Feb 19 2014
The S&P closed at 1828.75 down 12.01. The Dow closed at 16040.56 down 89.84. The NASDAQ closed at 4237.95 down 34.83..
After my comments yesterday about how the IWM ETF was doing fine in this rally, it followed the major indexes with an early morning rally and then a steep decline in the afternoon. It closed down over 1% at $114.97 losing $1.18.
Market Direction Technical Indicators At The Close of Feb 19 2014
Let’s review the market direction technical indicators at the close of Feb 19 2014 on the S&P 500 and view the market direction outlook for Feb 20 2014.
The 1750 level is holding the S&P up. Yesterday the S&P had trouble staying above 1840 and managed to squeak out a close at 1840.76. Today stocks tried to push higher and the rally was rejected strongly with the S&P quickly collapsing back below 1840 to close at 1828.75. We have seen this pattern before though when a market direction up is very overbought. If you look at the chart above you can see the period in January where the same pattern emerged of a sell-off day and then a rally attempt the following day. Note how in January the market direction managed to recover and push even higher and then collapsed. Be prepared then that if the market rallies tomorrow watch for it to turn sideways again which will be a clear signal that the move will be lower.
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 pulled back but is still strongly positive.
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 slightly lower today than it was yesterday but the pullback today did not have a strong effect on MACD. It may tomorrow though if stocks continue to move lower.
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 no longer extremely overbought.
Rate Of Change is set for a 21 period. The rate of change yesterday finally managed to break through from being negative. That ended today and the rate of change is back negative again. .
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling that the next market direction move is lower. It is still 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 next move is lower and it too is still very overbought.
Market Direction Outlook And Strategy for Feb 20 2014
The move lower today was not unexpected. My market direction outlook for Wednesday was for stocks to move lower. The market direction up is very overbought. Tonight the technical indicators all reflect the downturn. The stochastic are the most noticeable with both issuing sell signals on the market direction today. Overall I believe the next move will be lower for stocks. Tomorrow then we could see a rally attempt at the outset to try to regain momentum to the upside but I think any such attempt will fail. I believe the market direction will be lower, even if only marginally, into the close on Thursday.
If the Weekly Initial Unemployment Insurance Claims come in at or above 350,000 watch for the market direction to move lower at the outset. I still do not see a big tumble for stocks at this stage but the overbought condition has to be worked out and that is what we may see over the next several days.
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