The market direction outlook for Tuesday was for stocks to be weak in the morning but then continue the rally in the afternoon. Instead stocks moved still lower after news of a Russian buildup on Ukraine’s border unsettled investors in the mid-afternoon. Investors were busy digesting new factory orders which came in at 1.1% in June and the ISM report which showed a rise of 58.7%, the highest rise since December 2005. Analysts and investors alike felt that these strong figures showed the US economy is continuing to grow and that interest rates cannot stay at zero much longer. Into this environment came news of 20,000 Russian soldiers massing at Ukraine’s border. Let’s take a look at today’s market action.
Market Direction S&P Intraday Chart August 5 2014
The one minute intraday chart for the SPX for August 5 shows the opening drop back down to the 1930 valuation and then a rally back. The morning was spent with stocks move above and below the 1930 support level. By the noon hour, the S&P was already falling below 1930 and the final rally around 1:30 saw the S&P only manage to move slightly above 1930 before the news of Ukraine’s continuing crisis took center stage. Stocks drop like a stone on the news and by 2:00 PM the S&P was down to 1913.77. A rally back moved the SPX above 1919 but a second drop shortly after 3:00 PM pushed the SPX back down to 1914.43 before the market pushed back up to close just above the 1919 support level, at 1920.21.
Advance Declines For August 5 2014
Monday’s volume increased by 15% to 3.4 billion shares. 77% of stocks were declining and 75 new 52 week lows were made, almost the same number as Monday. 69% of all stocks were declining on Tuesday and only 25 new highs were made.
Market Direction Closings For August 5 2014
The S&P closed at 1920.21 down 18.78. The Dow closed at 16,429.47 down 139.81 and well off the lows that saw the Dow down 199 points. The NASDAQ closed at 4352.84 down 31.05.
The biggest surprise of the day was the Russell 2000 IWM ETF which closed down just 28 cents or a quarter of a percent to $111.38..
Market Direction Technical Indicators At The Close of August 5 2014
Let’s review the market direction technical indicators at the close of August 5 2014 on the S&P 500 and view the market direction outlook for August 6 2014.
Stock Chart Comments: Stocks today continued to hold the 100 day EMA despite another plunge lower on the news out of Ukraine..
1975 and 1956 Support: Both of these levels have been broken through and may act as resistance to any attempt to push back up.
Support levels at 1930 and 1919 are both light support and are being tested at present. The 1930 support was broken today while the 1919 support was broken but the market managed to push back and close just above the 1919 support level..
Strong Support Levels are at 1870 and 1840. The 1870 level is below the 100 day EMA so I am expecting this pullback to reach that far but a lot now depends on how strong the recovery bounce may be. 1840 is below the 200 day EMA and would mark a serious correction. A break of 1870 is a definite signal that those investors not holding Ultra short ETFs or SPY PUT Options 2 months out, should be doing so by this point for a bigger move lower.
The other two support levels not shown in the chart above are 1775 and 1750. I have explained that these two are critical support for the present bull market. While 1775 is important it is 1750 that is now the bottom line.
A break of 1750 would mark a severe correction of 180 points which is below a 10% correction from the most recent high. This would be the biggest correction since April 2012. A pull-back of that size would definitely stun investors at this point and it is not something I am anticipating as there are no signs of any impending correction of that magnitude. If stocks did get this low it would become questionable if the correction would move down at least another 5%.
My Pullback Outlook: I have been waiting for a pull-back this summer to between 1870 to 1919. I still believe there are too many signs against a bear market or a severe correction beyond 10%.
At this point the 1919 level has been severely tested and while it held up today, it may give way on Wednesday.
Momentum: For Momentum I am using the 10 period. Momentum has been the best indicator, replacing MACD as the most accurate indicator. Momentum is now negative and lower.
MACD Histogram: 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 sell signal on July 8. Today the sell signal continues to gain strength.
Ultimate Oscillator: 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 now deeply oversold.
Rate of Change: Rate Of Change is set for a 21 period. Today’s drop in equities has changed the Rate Of Change back to lower.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. As the Slow Stochastic tries to predict the market direction further out than just one day. The slow stochastic is pointing to stocks moving up. It is oversold.
Fast Stochastic: 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 pointing to stocks moving lower however the readings are deeply oversold and often that means a rebound could occur.
Market Direction Outlook And Strategy for August 6 2014
The market direction for Tuesday had enough strength left from Monday, to push higher. The news out of Ukraine dampened any enthusiasm for stocks and the markets fell. Luckily for us investors have very short memories. There is still enough strength for stocks to try to push higher again on Wednesday but at the present time the market looks ready to move lower.
This means that any recovery attempt will fail. The technical indicators are all negative. Only the Slow Stochastic is even pointing to a possible rebound off an oversold condition.
But it was interesting to see the indexes all recover from the drop in the mid-afternoon. This could signal a chance for stocks to move higher on Wednesday before more selling pushes stocks lower.
For Wednesday I am looking for a rebound attempt in the morning, perhaps at the outset and then additional selling which will push the indexes lower.
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