The market direction outlook for Tuesday was for stocks to continue to advance but with a growing overbought condition making the advance tougher. We saw that overbought condition today, with the market pushing up in choppy but steady action until mid-afternoon and then sellers arrived and shoved the market direction back down. Let’s take a look.
Market Direction S&P Intraday Chart April 22 2014
The one minute chart below for April 22 2014 shows another choppy day for stocks. The opening showed some investor enthusiasm after earnings from Netflix came in better than expected. Within minutes the rally died and investors pushed the S&P back to the open. That marked the first dip of the day. From there the market direction moved still higher and pushed to 1879. Some selling erupted but the 1879 level held. This brought in more buyers who pushed the S&P up to 1881. That marked another higher low for the day. This type of action breeds confidence. If you look at the chart the downturns are short unlike previous days. The general mood becomes more bullish on days like today when the little intraday dips are very shallow. Buyers stepped back in after the lunch hour and pushed the S&P up to 1885. That seemed to be too over-stretched for a lot of investors who began to take profits. When a third little rally failed to break beyond 1885 around 2:30, that brought in sellers who quickly pushed the market direction back lower into the close. The fade for the last hour pushed the S&P back below 1880.
Advance Declines For April 22 2014
Stocks continued to advance on Tuesday with advancing issues now outpacing decliners by a wider margin with 71% of stocks advancing and 26% declining. The number of new highs at 147 versus new lows at 54 shows the continued bullish bias, but the same problem continues to show. Investors need to see new highs up around 300 plus to show real strength. Readings that high are the type seen in the recovery from the late January correction when stocks recovered.
Market Direction Closings For April 22 2014
The S&P closed at 1879.55 up 7.66. The Dow closed at 16,514.37 up 65.12. The NASDAQ closed at 4161.46 up 39.91.
The Russell 2000 ETF IWM rose $1.17 for one of its bigger gains in recent days to close at $114.62
Market Direction Technical Indicators At The Close of April 22 2014
Let’s review the market direction technical indicators at the close of April 22 2014 on the S&P 500 and view the market direction outlook for April 23 2014.
The 1750 level continues to hold the S&P up since the correction ended in early February. All the levels of any support above 1800 have been broken and will need time to heal and create support again. Any downturn in stocks will quickly see these levels above 1800 break. The only level above 1800 that has any support worth mentioning is the 1840 level. Yesterday stocks closed above 1870 and today just below 1880. The S&P is within striking distance of the all-time high of 1897.28 but the late day selling showed the overbought environment. This may make breaking convincingly into new highs difficult if not impossible.
For Momentum I am using the 10 period. Momentum has been the best indicator over the past four months, replacing MACD as the most accurate indicator. Momentum today moved further into positive readings.
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 today. The buy signal must be confirmed by a stronger reading tomorrow.
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 continuing to stay overbought.
Rate Of Change is set for a 21 period. The rate of change is climbing into a more positive reading.
For the Slow Stochastic I use the K period of 14 and D period of 3. Today’s action was enough to move the Slow Stochastic is continuing to signal that the market direction is up. The Slow Stochastic is climbing towards an overbought reading but there is still plenty of room before it becomes 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 continues to also signal another up day for Tuesday although it is beginning to show signs of being overbought.
Market Direction Outlook And Strategy for April 23 2014
All the indexes are flashing overbought signals. That does not mean the markets will sell-off but it does mean the move higher will continue to be choppy and more difficult. With all the indicators now positive we need to see a buy signal confirmation from MACD tomorrow.
The Indexes were higher prior to the close including over a 100 point gain in the Dow. The late afternoon saw a lot of weakness and much of the gain was given back. While not necessarily anything to be concerned about, the decline was steady into the close so we could see weakness in the morning to start the day on Tuesday.
With the technical indicators still positive, any selling is more an opportunity than a reason for concern. The discussion about similarities between this market at the present time and the market top in 2007 I believe is not worth listening to. In 2007 unemployment was rising as were interest rates. This market has declining unemployment and historic low-interest rates. The chance that interest rates will return to any kind of “normal” percentages within the next year I think are next to nil.
My strategy is still the same. I am looking at dips as opportunities but am still staying cautious as the market tries to break back through the top. If it cannot break through in a very short period, then stocks will change direction and as we head into May we will see lower prices. That is what I have waited for to apply more capital into trades.
For tomorrow then the technical indicators shows that stocks may continue weak in the morning and then regroup and try to push even marginally higher.
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