When I said the outlook for the second trading day of the new year was for stocks to move lower, I didn’t mean by 1.8%! While the technical indicators were advising that the trend was back to down, I didn’t see that European markets and the drop in the price of oil to a low not seen since April 2009, would impact stocks to this extent in one day.
Advance Decline for Jan 5 2015
Volume picked up dramatically today with 3.8 billion shares traded, closing in of higher numbers of 4 billion which is normally reserved for big plunges so obviously today was a big plunge. 3.8 billion of shares traded also advises that a lot of investors were getting out, once again just as they had done in mid-December. The roller coaster ride must be hurting a lot of investors. New lows came in at just 87 and new highs at 73. The new lows will become a lot higher but for now, 87 shows just how many stocks are sitting above their 52 week lows. Primarily today it was the energy and metals stocks that once more took a pounding.
Market Direction Closings For Jan 5 2015
The S&P closed at 2020.58 down 37.62. The Dow closed at 17,501.65 down 331.34. The NASDAQ closed at 4,652.57 down 74.24
Market Direction Technical Indicators At The Close of Jan 5 2015
Let’s review the market direction technical indicators at the close of Jan 5 2015 on the S&P 500 and view the market direction outlook for Jan 6 2015.
Market Direction Technical Analysis for Jan 05 2015
Stock Chart Comments: The S&P on Friday had tested 2050 twice and broke through once. That obviously was the first warning sign that today was going to be “bad”. The doji cross candlestick was also another warning as explained yesterday. The drop today has stocks down to just above the 100 day exponential moving average (EMA). Stocks plunged right through the 50 day easily but a bounce could retest the 50 day and then fall again. Just thinking out loud on that one as there is no evidence to support such a bounce, but I have seen it happen on numerous occasions when the 50 day is sliced through so easily in one day.
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:
These are the present support levels.
2075 was very light support and broke easily last week. Below that was 2050 which was light support and broke today after two days of testing. Stronger support is at 2000 which could delay a fall perhaps a day or two at the most and weak support is found at 1970. Stronger support is then at 1956 which again should delay a further pullback again by at least a day.
1870 and 1840 are both levels with strong enough support to delay the market falling and should see a sideways action attempt while investors decide whether to sell or buy.
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 at the close.
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 today of a fairly sizeable reading. It must be confirmed before it can be accepted.
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 oversold.
Rate of Change: Rate Of Change is set for a 21 period. The Rate Of Change had been advising that a change in the trend was coming and now it is confirming that trend back lower.
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.
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 should continue.
Market Direction Outlook and Strategy for Jan 6 2015
Well history was broken today when the Dow fell more than 300 points. The Dow over the past 21 years has been up 14 of those years. This year was not meant to be. Technically last night all the indicators were pointing to a move lower for stocks so everything was set for stocks to fall lower.
The fall today broke the support at 2050 but now must break through 2000 which is stronger support. It should delay a larger drop by at least a day or maybe two days. For Tuesday I would expect to see a rebound attempt in the morning and then more selling. If the rebound should last longer than the morning and into the close, I would expect more selling on Wednesday.
Either Tuesday or Wednesday the market will test 2000. If it breaks, it will move lower quickly.
Stay FullyInformed With Email Updates
Market Direction Internal Links
Profiting From Understanding Market Direction (Articles Index)
Understanding Short-Term Signals
Market Direction Portfolio Trades (Members)