The outlook for Wednesday was for a rebound in stocks to commence. Whether this is a one day event or might mark the end of the recent sell-off is tough to predict. We have the unemployment report for December coming up. Let’s look at today’s technical picture and see what we can understand for Thursday.
Advance Decline for Jan 7 2015
Volume was good on Wednesday with 3.8 billion shares traded and 72% of all volume to the upside. New highs came in at 179. We still need new highs back up over 200 to 250 to really set the market up for a strong push higher.
Market Direction Closings For Jan 7 2015
The S&P closed at 2025.90 up 23.29. The Dow closed at 17,584.52 up 212.88. The NASDAQ closed at 4,650.47 up 57.73
Market Direction Technical Indicators At The Close of Jan 7 2015
Let’s review the market direction technical indicators at the close of Jan 7 2015 on the S&P 500 and view the market direction outlook for Jan 8 2015.
Market Direction Technical Analysis for Jan 7 2015
Stock Chart Comments: Stocks today back above the 100 day exponential moving average (EMA) to close above it and below the 50 day. The 50 day simple moving average (SMA) continues to rise while the 20 day simple moving average (SMA) has fallen back to the 50 day SMA. So what does all this mean? The signal is that short-term the market is still under stress represented by the 20 day falling to the 50 day. The rising of the 50 day though indicates that the sell-off may simply be a dip and the 50 day is pointing to higher prices ahead.
Support Levels:
These are the present support levels.
2075 was very light support and broke easily in the downturn. Below that was 2050 which was light support. 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 but turned up today.
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 Jan 5. The reading is strongly negative.
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 deeply oversold but turned up slightly today.
Rate of Change: Rate Of Change is set for a 21 period. The Rate Of Change is showing that the downturn is still underway.
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 the move down for stocks should be over for Thursday and we should see stocks move higher.
Market Direction Outlook and Strategy for Jan 8 2015
Technically the indicators are pointing to stocks remaining weak although almost all the technical indicators did turn up by the close today reflecting the rise in valuations. 2000 held the market up on Tuesday and on Wednesday stocks closed above the 2020 level.
For tomorrow I am expecting some weakness in the morning but another push by stocks to move higher by the close. This could be the start of a move back up or a rebound rally after 4 days of big losses. Keep cash available and have patience as the market tries to sort out where it is going next.
As explained in Tuesday’s market direction outlook, the big number to watch this week will be the unemployment report. This week it could be a real game changer but hopefully to the upside. Stocks look very weak but they should be able to hold the 2020 level and move to at least 2040. If not, then watch for the 2010 level to break and the market to fall back to the 2000 level. I am not anticipating that will be the case.
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