The outlook for stocks on Thursday was obviously higher. That was probably among the easiest outlooks done. The biggest problem I had on Thursday was setting up the Market Direction Portfolio for the next move. With stocks roaring higher from the outset there was no question Fed Chair Yellen had done what investors wanted and they responded by lighting up the trading board green. With a rise of 421 points in the Dow and 48 points in the S&P, it was the best day since November 2011 and the biggest two-day rise since then as well. This is the 6th Christmas period in a row that the Fed has given investors a huge Christmas present. Let’s look at today’s action and then review the outlook for the last day of this week.
Advance Decline for Dec 18 2014
With roughly 4.6 billion shares traded the bulls were fully in charge from the minute the opening bell commenced trading. 89% of all volume was to the upside. While new highs came in at just 188, new lows were only 23. With new highs at 188, there is still a lot of room for many stocks to push higher.
Market Direction Closings For Dec 18 2014
The S&P closed at 2061.23 up 48.34. The Dow closed at 17,778.15 up 421.28. The NASDAQ closed at 4748.40 up 104.08.
Market Direction Technical Indicators At The Close of Dec 18 2014
Let’s review the market direction technical indicators at the close of Dec 18 2014 on the S&P 500 and view the market direction outlook for Dec 19 2014.
Market Direction Technical Analysis for Dec 18 2014
Stock Chart Comments: Stocks rallied hard today and pushed beyond the final technical level of 2050. Tomorrow could see a pullback to that level but the SPX will set a new high shortly. The 50 day is pulling away and moving higher.
Support Levels:
Below 2050 is strong support at 2000 and weak support at 1970. Stronger support is then at 1956. 1870 and 1840 are both levels with strong enough support to delay the market falling.
The other two support levels 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 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 but rising and ready to turn positive tomorrow.
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 quickly now and will soon turn to a buy signal.
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 negative but recovering and rising quickly.
Rate of Change: Rate Of Change is set for a 21 period. The Rate Of Change is positive and continues to point to the market trend up as having considerable strength. The SPX will break to new highs.
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. Yesterday’s buy signal was confirmed today.
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 a strong up move for stocks. Yesterday’s buy signal was confirmed today.
Market Direction Outlook and Strategy for Dec 19 2014
The outlook for stocks is definitely higher. The Fed inspired rally has done its job. After two days of extreme gains, marking the biggest two-day move since November 2011, the market can be forgiven if it takes a rest tomorrow, but overall it looks set to continue the advance on Friday. While we could see more weakness in the morning such as a bit of a dip, I am not sure that will even happen despite the strong two-day rally. The market is not overbought and has room to run. The dip buyers may be disappointed but if there is a dip expect it to be short.
The number of new highs is just 188 which means many stocks have room to climb and recover. This affords investors a chance to tack on gains into the year-end. So even if on Friday we end with a bit of a sideways day, all the indexes will be making new highs by next week barring some unforeseen calamity. The fact that stocks ignored weakness in oil today is a good sign. That may not continue though if oil falls below $50.00. Analysts are betting oil has bottomed. I am not an oil analyst but I am enjoying my Exxon Mobil trade.
Tomorrow I am expecting a higher close again. Dips are meant to be bought into and trading opportunities should be taken in my opinion.
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