The outlook for stocks on Wednesday depended almost exclusively on the Fed comments. My outlook was for stocks to move lower through the rest of the week. The Fed comments though were more than enough to move stocks higher on Wednesday. Whether the Fed comments are enough to continue to propel stocks higher is tough to say but certainly investor enthusiasm for the so-called “Santa Claus Rally” often times can be self-fulfilling. My outlook was that the rally would occur but from a lower point. That may not be the case. Let’s look at today’s action and then review the outlook for Thursday.
Market Direction Closings For Dec 17 2014
The S&P closed at 2012.89 up 40.15. The Dow closed at 17,356.87 up 288.00. The NASDAQ closed at 4644.31 up 96.48.
Market Direction Technical Indicators At The Close of Dec 17 2014
Let’s review the market direction technical indicators at the close of Dec 17 2014 on the S&P 500 and view the market direction outlook for Dec 18 2014.
Market Direction Technical Analysis fpr Dec 17 2014
Stock Chart Comments: Stocks rallied and held the rally throughout the day closing back above 2000 and back above the 100 day exponential moving average (EMA) and 50 day simple moving average (SMA). The gap between the 100 day and 50 day moving averages is continuing to widen as the 50 day pushes away from the 100 day.
The move by the market today to retake 2000 is a good sign for a recovery and to set the market up for a further rally. The next level after 2000 is at 1970 which is light support and then 1956.
Strong Support Levels are at 1870 and 1840. Both levels are strong enough to delay the market falling.
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 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 at this time.
Momentum: For Momentum I am using the 10 period. Momentum is negative and rising.
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 a sell signal on Dec 1. MACD continues negative but the readings are rising slightly from Wednesday.
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 deeply oversold and trying to recover.
Rate of Change: Rate Of Change is set for a 21 period. The Rate Of Change is negative but turned up today signaling a possible changed back to up for stocks. The rate of change never reached a strong negative readings however which would seem to indicate that this pullback was not going to be as deep as I had thought.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic tries to predict the market direction further out than just one day. The Slow Stochastic is signaling market direction is up and it is deeply oversold. An unconfirmed buy signal was generated.
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 signaling upfor stocks and is deeply oversold. An unconfirmed buy signal was generated.
Market Direction Outlook and Strategy for Dec 18 2014
The outlook for stocks is back to up primarily thanks to Fed Chair Yellen who continues to keep investors assured that the Fed will do whatever it needs to keep the market from “falling apart”. The other factors were the stalling of the decline in oil and the sideways movement in the US dollar. Whether oil can hold at present levels remains to be seen but the damage from declining oil to many economies has not yet reached its impact. Therefore the move back to up for stocks is for short-term only. Perhaps as short as next week through the Christmas holiday period where investors are awaiting the start of the Santa Claus Rally next week.
Today’s rally was strong and convincing. The trend is back to up but I remain cautious, especially into January. Whether the market can absorb the fall-out from many countries collapsing currencies, remains to be seen. While I doubt we will see anything like the 1998 crash of the Russian ruble, a currency crisis can occur quickly. I tend not to be an alarmist but I do believe it prudent to have larger cash levels than usual as stocks head into the end of the year. My positions will be smaller to allow for larger amounts of cash on the sidelines to both take advantage of opportunities and to rescue any positions should stocks decide to start 2015 with another pullback.
But that’s a couple of weeks away. For tomorrow I am expecting some weakness to start the day which will be an opportunity to get into more positions. From there I am expecting a higher close.
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