The Market Direction outlook for Friday was for stocks to move through the 1840 level. They did but they pulled back and closed lower. This set up the technical indicators to show weakness as all the technical indicators pulled back. This left today’s outlook as sideways with a bias to move lower. Instead stocks did what was predicted for Friday and pushed through 1840 and then closed back way off the highs for the day. At one point the S&P 500 was up over 22 points and then selling pushed the S&P back to close just below the all-time closing high. It was an exciting day for stocks but continues to show the resistance facing stocks at present levels. Let’s take a look at today’s activities.
S&P Market Direction for Feb 24 2014
It was certainly an interesting day as from the open stocks pushed higher. While there did not seem to be any particular reason for such a jump there is a strong belief among analysts that the last few days have seen fund companies buying stocks on weakness and keeping stocks “under pressure” as it were while they loaded up their positions. With that ended analysts indicated they felt the move higher was because their pressure to keep stocked corralled just below 1840 was finished and now stocks would be pushed higher. This may seem far fetched but there really did not seem to be any reason for stocks to be pushed to such extremes, which may actually have accounted for stocks to fall back later in the day. The first pullback was very short and took the S&P to 1844.32. The second pullback was at 1847.69 and from there stocks moved higher until the noon hour. With the S&P well ahead of the all-time high and the NASDAQ at the highest level since April 2000, stocks began a slow retreat which in the last hour picked up steam. The S&P ended up back at 1847.61 at the same level as the second pullback before 10:00 AM. Still though the move higher was impressive and did see the S&P close above the 1840 level.
Advance Declines For Feb 24 2014
Despite the huge rise in the indexes only 59% of stocks were advancing. Normally an advance of the kind seen on Monday would see over 70% stocks advancing. This left 37% of stocks declining. However there were 260 new highs and just 74 new lows so once again the market direction momentum continues to support a further rise in stocks.
Market Direction Closings For Feb 24 2014
The S&P closed at 1847.61 up 11.36. The Dow closed at 16207.14 up 103.84. The NASDAQ closed at 4292.97 up 29.56.
The Russell 2000 ETF IWM almost set a new record as intraday it reached 117.31 before falling back to close up 85 cents at $116.51
Market Direction Technical Indicators At The Close of Feb 24 2014
Let’s review the market direction technical indicators at the close of Feb 24 2014 on the S&P 500 and view the market direction outlook for Feb 25 2014.
The 1750 level is holding the S&P up. Today the S&P closed back above the 1840 level and during much of the day traded at all-new historic highs. The market direction turned down starting over the noon hour but the S&P still closed up 11 points. What we want to see now is support built at 1840.
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. Despite today’s higher close momentum continued to decline today. Part of that decline can be attributed to the market direction change from the noon hour into the close as stocks gave back much of the gains made. But still it is a classic signal when a stock or an index moves higher and momentum continues to fall. This needs to be carefully watched as often this is a sign of continued weakness and eventually selling.
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. MACD turned lower on Friday and today it failed to rise but instead remained almost unchanged from Friday’s reading. Again a signal that must be watched. Stocks need MACD to rise which will support stocks moving 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 followed the same action as momentum, falling lower during the day and ending positive but lower.
Rate Of Change is set for a 21 period. The rate of change of change on Monday took a big jump higher. This normally signals a change in the market direction. This means the market direction is either going to move swiftly higher from here or pull back.
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 higher and it is extremely overbought. The sell signal of just a few days ago is gone, replaced by a buy signal.
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 extremely overbought and it too signals that the next move for stocks is higher.
Market Direction Outlook And Strategy for Feb 25 2014
Despite the rise today, momentum and the Ultimate Oscillator continued to move lower. MACD was unchanged on the day. The Rate of Change though signaled that a change is coming as it turned very positive with a big jump today. Meanwhile the two stochastic indicators are pointing to higher prices for Tuesday and for later in the week. So which indicators should we place the most emphasis on. If we weigh each of the indicators equally, then the next move will be higher for stocks.
Whatever the reason for the jump today, as an investor I primarily focus on my trades in play and those that can also be entered into. In that regard, despite the market direction being up, down and sideways and now back to up, I am continuing to grow my portfolio while at the same time keeping my capital in use protected as much as possible. 2014 is certainly not setting itself up to be anything like 2013. The Stock Traders Almanac indicates that midterm election years tend to be poor performers and 2014 is a midterm election year. We also have the January effect which the Almanac indicates has a success rate of 88%. So with both of these as headwinds to smooth sailing for stocks, it is no wonder stocks continue to have trouble.
My strategy is still unchanged. Despite all the market gyrations I am still investing through selling puts, some covered calls and a few credit spreads. This kind of market direction action continues to help keep stock valuations fluctuating and options elevated which is perfect for my method of investing. Just remember that historically the Dow has been down the last week of February 10 times in the last 15 years.
For Tuesday then I am looking for the market direction to continue to try to move higher. There is definite weakness which we saw in the decline of the rally later in the day. That decline was not pleasant to see happen but overall stocks still appear ready to move higher and as we saw today, it sometimes does not take much for that to happen.
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