The outlook for stocks for Wednesday Dec 31 2014 was for stocks to move lower. The technical indicators did not show a large pullback, but instead simply a move that should send stocks eventually down to the 20 day simple moving average (SMA). However end of year jitters, possibly some end of year selling along with worries over the start of a new year combined with a still negative outlook for the global economies in 2015 to send stocks down lower than I would have expected for the final day of trading in 2014. Perhaps though, what we saw on Wednesday was just end of year pressure.
Advance Decline for Dec 31 2014
Volume on December 31 was up slightly at 2.6 billion shares. 73% of that volume was to the downside. New highs still dominated though with 163 new highs and just 39 new lows. This is understandable despite the drop on Wednesday in stocks as many stocks are well above their lows so only 39 new lows is not really indicative of the move lower for stocks on Wednesday.
Market Direction Closings For Dec 31 2014
The S&P closed at 2,058.90 down 21.45. The Dow closed at 17,823.07 down 160. The NASDAQ closed at 4,736.05 down 41.39.
Market Direction Technical Indicators At The Close of Dec 31 2014
Let’s review the market direction technical indicators at the close of Dec 31 2014 on the S&P 500 and view the market direction outlook for Jan 2 2015.
Market Direction Technical Analysis for Dec 31 2014
Stock Chart Comments: The lower move on Wednesday was larger than anticipated. This obviously brings to light the question of the Santa Claus Rally which traditional extends into the first week of January. It would appear the rally has been very short-lived. The S&P fell back nearing support at 2050. The outlook was for the S&P to hit the 20 day simple moving average (SMA) which is what happened on Wednesday. I did not expect this to happen until Friday.
The 50 day simple moving average (SMA) is still pushing higher but the candlesticks continue to point to further weakness in the index.
Support Levels:
2075 has very light support and broke easily on Wednesday. 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 pulling back slightly.
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. Readings are pulling back slightly again.
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 and falling rapidly.
Rate of Change: Rate Of Change is set for a 21 period. The Rate Of Change is back negative and turning lower indicating a possible change in trend has already started.
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 down 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 down for stocks and it too is overbought.
Market Direction Outlook and Strategy for Jan 2 2015
Nervous is high among investors as stocks enter 2015. The plunge of more than 1% on Wednesday has set the market down to the 20 day simple moving average (SMA). If it breaks through then the latest rally has failed and it has set the market up with a second top. Personally I think it’s a bit early for that to happen. With 2015 starting, the US dollar ending 2014 with its best year since 2005, interest rates still near zero and a very dovish Fed, I don’t think a crash for January is in the cards.
All the technical indicators are pointing to lower prices for Friday so obviously they believe stocks will fall below the 20 day SMA. However I won’t be surprised if stocks actually fail to extend their losses and have a bit of a rally back.
For Friday then, to start off 2015, stocks are set to fall lower, but personally, I won’t be surprised to see a bit of a positive effort throughout much of the day as I think a lot of Wednesday was end of year pressure.
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