The market direction outlook for Wednesday was for stocks to be weak especially in the morning and then try to regroup in the afternoon and push even marginally higher. The problem is primarily an overbought market and once again with the S&P possibly ready to break to new all-time highs, investors are continuing to lack conviction to add additional capital. Investors are still nervous but at the same time refusing to sell.
Home Sales Plunge
Aside from the overbought condition, sales of new single family homes plunged to their lowest levels since July of last year with a drop of 14.5%. Tolls Brothers is the only home builders stock that I follow. Today the stock fell 1.84% by the close, down to $33.66. Still this is not as low as last fall when Toll Brothers was trading at $31.70 on better housing numbers. The stock is continuing to move lower although even with today’s new home sales news the stock managed to close off the lows and is starting to push away from the Lower Bollinger Band for a possible end to the latest downturn in the stock. I will be looking at this stock shortly for a possible trade.
PMI Slips
Adding to the day’s downturn was the manufacturing purchasing managers’ index which slips to 55.4 for April while analysts had expected a rise in the index. Still at 55.4 the economy is growing.
Weakness
But often on days when stocks trend down, investors are looking for reasons to sell and the above two economic figures combined with a solid overbought condition was enough to keep the market direction weak for the entire day.
Market Direction S&P Intraday Chart April 23 2014
The one minute chart below for April 23 2014 shows yet another choppy day for stocks. Investors were selling from the open and by shortly after 10:00 they had pushed the S&P to below 1875. That sparked a rally back which pushed the index all the way above 1879. This created the 11:00 AM trade for my Trading For Pennies Strategy trades yet again. This 11:00 AM trade has become a standard trade for the past several weeks.
The market direction then entered a period of choppy trading with 1875 on the downside being tested several times during the day but holding. Still even with the lower level held at 1875, investors kept the pressure on stocks and all afternoon stocks set up a pattern of lower highs. The close was the S&P back to the 1875 level as it closed at 1875.39.
Advance Declines For April 23 2014
Stocks were almost equally split on Wednesday with 47% advancing and 50% declining. However the number of new highs was above Tuesday’s numbers with 154 stocks setting new 52 week highs and 57 stocks setting new 52 week lows. Once again the strength in the market continues to favor the bulls which is a principal reason to stay invested at present and enjoy profits from these types of dips..
Market Direction Closings For April 23 2014
The S&P closed at 1875.39 down 4.16. The Dow closed at 16,501.65 down 12.72. The NASDAQ closed at 4126.97 down 34.49 but closing just above the 100 day EMA.
The Russell 2000 ETF IWM fell 72 cents to close at $113.90.
Market Direction Technical Indicators At The Close of April 23 2014
Let’s review the market direction technical indicators at the close of April 23 2014 on the S&P 500 and view the market direction outlook for April 24 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. Today was a weak day but nothing out of the ordinary for stocks. After 6 days of straight gains which has seen the S&P recover most of the previous shallow correction, a day like today has to be expected.
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 is still positive although it did turn down with today’s weakness but the most important aspect right now is that momentum is back 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 April 22 and today MACD confirmed that buy signal.
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 still providing a 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 Thursday although it is beginning to show signs of being overbought. Today you can see in the chart that the Fast Stochastic turned slightly down but it is not signaling a change in the overall trend at this time.
Market Direction Outlook And Strategy for April 24 2014
The problem today was primarily an overbought market direction and investors were looking for an excuse to take profits. They got that excuse with the new home sales number and the PMI number. Tomorrow we get the Weekly Initial Unemployment Insurance Claims. I am not expecting much of a change. Perhaps 10,000 difference in either way is to be expected in my opinion.
After hours both Apple and Facebook provided investors with decent earnings and that will definitely assist in pushing stocks higher. Apple stock is definitely going to be up tomorrow on the news of the earnings, the buyback, the revenue numbers and the stock split. I will be putting in place more trades in Apple Stock tomorrow.
Meanwhile Facebook Stock should also be up tomorrow with the company also providing decent numbers both in revenue and earnings. Right now I am completing my trade in Gilead Sciences stock which is my speculative trade at this time. Since I only do 1 speculative trade at a time, I won’t be moving into a Facebook Stock trade tomorrow but I will be watching for trades shortly as my Gilead Sciences stock trade winds down.
The technical indicators are all pointing to higher prices shortly for stocks. The Fast Stochastic is warning that tomorrow could see some further weakness in stocks but I am not expecting anything major. I believe there could be a rally attempt at the open and then some selling before a move back higher late in the morning or over the lunch hour. I am expecting a slightly positive close for tomorrow.
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