The outlook for Friday for stocks, was for a continuation of the Santa Claus rally. The rally should take stocks into the New Year with another short trading week to start on Monday. With the indexes at all-time highs, the NASDAQ set another record on Friday and is now within 326 points or 6.7% of its all-time high. Even breaking to 5000 will be seen as a major accomplishment. But with all the new highs there will always be dips and sell-offs, many of which could be larger than expected in the New Year. For now though, stocks look set to push higher on Monday, especially if oil stabilizes or moves higher on concern over Libya which caught the attention of the media this weekend.
Below you can see the NASDAQ index which set an all-time high back on March 10 2000 at 5132.52 which marked the crest of the dot.com bubble. Will this time be different for tech stocks? We will have to wait and see.
NASDAQ index nearing its all-time highs
Advance Decline for Dec 26 2014
Volume was low the day after Christmas but this was expected, with just 1.7 billion shares traded. 65% of all trades were higher while 30% were lower. There were though 222 new highs on Friday and just 21 new lows which continues to support the outlook for stocks to continue the year-end rally.
Market Direction Closings For Dec 26 2014
The S&P closed at 2088.77 up 6.89. The Dow closed at 18,053.71 up 23.50. The NASDAQ closed at 4806.66 up 33.39.
Market Direction Technical Indicators At The Close of Dec 26 2014
Let’s review the market direction technical indicators at the close of Dec 26 2014 on the S&P 500 and view the market direction outlook for Dec 29 2014.
Market Direction Technical Analysis for Dec 26 14
Stock Chart Comments: Stocks further ahead on Friday but there are signs the overbought condition may impact stocks this week, or certainly at the start of the week. Last week both Tuesday and Wednesday ended with doji-cross candlesticks. This candlestick is a fairly reliable indicator that warns that investors are a bit more indecisive. Usually we see a bit of a dip on days after two such candlesticks. Friday though saw stocks move higher, but the effect of being so overbought could stall stocks on Monday or certainly in the morning.
The 50 day simple moving average (SMA) though is pushing higher quickly now so despite the doji-cross candlesticks stocks still look like they want to move higher.
Support Levels:
2075 has very light support. 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 positive but trending sideways. It is not as strong as in previous rallies.
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 buy signal Dec 22. It has given two additional buy confirmations in the days that followed.
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 positive but fell dramatically on Friday from being heavily overbought.
Rate of Change: Rate Of Change is set for a 21 period. The Rate Of Change is positive but continues to trend sideways. This has to be watched. It is a significant warning that the rally could move higher but it could be doing so on less “steam”. That means we are going to see some dips unless the Rate Of Change can start to turn up strongly.
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 neutral and it is very overbought.
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 move up for stocks again on Monday but the signal is weak as the indicator is also very overbought.
Market Direction Outlook and Strategy for Dec 29 2014
The Santa Claus rally should continue into Monday but the market is very overbought. There are lots of warning signs that the rally could be slowing but at the same time, there are lots of signs the rally will continue. Often when investors anticipate a rally, they actually create one. This has often been the case with the so-called Santa Claus Rally. Last year (2013) was the same with a rally that in early January ended quickly and sharply with a move lower. That move though was a buying opportunity.
This year a lot of analysts are looking for the same such move in stocks. A further rally to the start of January and then a pullback by the end of the first week of January. With so many analysts believing this will be the case investors have to wonder whether it will actually happen.
Technically the Rate Of Change of the main indicator I am watching for any signs that the rally may be about to end or certainly stall for a day or two. At present the Rate Of Change is giving a “steady as she goes” signal, with a light support reading for the rally to continue.
For Monday I am expecting some weakness, probably in the early to mid-morning after what I think will be a gap open to start the day off. Then I am expecting an afternoon where stocks will try to push higher even if by just a few more points.
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