The outlook for stocks for Friday was for a lower close with the possibility of a slightly positive close as well. We actually saw both as the NASDAQ and SPX closed just slightly lower but the Dow closed slightly higher. Friday saw the US dollar move higher and oil lower. Other commodities fell as well including copper which is now down to its lowest level in 4 years. Gold which fell earlier in the week rose slightly on Friday although gold stocks jumped more than expected, perhaps with investors believing the dip earlier in the week is the last such dip for a while. Personally I think gold has further to fall.
Advance Decline for Jan 2 2015
Volume on January 2 was up again by about another 100 million shares to 2.7 billion. Volume was evenly split with 49% of all volume to the upside and 50% to the downside. Only 1% was unchanged. New highs tumbled to 55 and new lows fell back to 23. The drop of new highs is not encouraging for the start of the week.
Market Direction Closings For Jan 2 2015
The S&P closed at 2058.20 down 0.70. The Dow closed at 17,832.99 up 9.92. The NASDAQ closed at 4,726.81 down 9.24.
Market Direction Technical Indicators At The Close of Jan 2 2015
Let’s review the market direction technical indicators at the close of Jan 2 2015 on the S&P 500 and view the market direction outlook for Jan 5 2015.
Market Direction Technical Analysis for Jan 2 2014
Stock Chart Comments: The S&P tested support at 2050 twice on Friday and broke through in the afternoon only to have investors pick up shares and push the index back above 2050. A lot of investors are beginning to look at the chart above of the S&P and see a double top starting to be formed. In order for such a double top the market has to break below the previous low which is back below 2000. Until then, the direction remains up.
The 50 day simple moving average (SMA) is still pushing higher but the candlestick on Friday was another doji cross which throughout 2014 was almost always followed by weakness.
Support Levels:
2075 was very light support and broke easily last week. Below 2050 which is light support, is stronger 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 continues to erode.
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 and are close to issuing a sell 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 and trending sideways.
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 5 2015
Technically the indicators are all pointing to more weakness to start off Monday. Historically though, the second trading day of the New Year, especially a pre-election year, has been strong with the Dow up 14 of the last 21 years.
So who might win out on Monday? I am going with the technical indicators on this one. We might see a weak start and then a rally back but I am expecting the technical indicators could be right and there is more downside to come. It might not happen on Monday though as traditionally it has been a very strong day for stocks. If Monday is higher, then look for weakness again on Tuesday. Right now though I think Monday looks poor.
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