The market direction outlook for Tuesday was for stocks to remain weak with a bias to move lower. Instead with Ukrainian rebels handing over the black box from the downed Malaysian Passenger Airliner, investors looked at the action as a probable de-escalation of the Ukrainian crisis and turned their attention back to buying stocks.
Statistics released on Tuesday showed the consumer price index (CPI) moved higher by just 0.3 percent in June, well in line with Federal Reserve noted guidelines and possibly assisting the Fed in keeping interest rates lower for longer still.
Market Direction S&P Intraday Chart July 22 2014
The one minute intraday chart below shows Tuesday’s action. The news of Malaysian air being given the black box and of the remains of passengers being returned seemed to calm investors and the S&P opened higher. Within minutes there was a sharp drop to the 1980 level which held and investors then bought pushing the S&P to 1983 and then by shortly after 11:00 AM above 1985. Into the lunch hour 1985 level held but as the afternoon wore on the market began to drift and by 3:00 PM it was falling back below 1983. Investors stepped back into the market in the late afternoon when they saw that stocks were not falling further and pushed stocks up, to close above 1983 at 1983.53.
Advance Declines For July 22 2014
Volume picked up on Tuesday as 2.9 billion shares traded with 67% of the volume up. Of the stocks traded 66% were advancing. New highs rose to 156 and new lows plunged from yesterday’s 71 to close with just 17 new lows. The strength of the market to move higher continues to confound analysts but it is what it is and stocks continue to be pushed by investors.
Market Direction Closings For July 22 2014
The S&P closed at 1983.53 up 9.90. The Dow closed at 17,113.54 up 61.81. The NASDAQ closed at 4456.01 up 31.31.
The Russell 2000 IWM ETF closed up 96 cents at $114.73.
Market Direction Technical Indicators At The Close of July 22 2014
Let’s review the market direction technical indicators at the close of July 22 2014 on the S&P 500 and view the market direction outlook for July 23 2014.
Stock Chart Comments: I have been commenting for several days regarding the past chart patterns of the various dips in the S&P over the past 3 months. I have marked these in the chart above as A, B and C. The period marked D is where stocks are at present. You can see that all the patterns are basically the same for the dips, except the present one marked D.
That pattern was broken starting last Thursday but today the S&P is showing signs that it may try to re-establish the same pattern as today it closed higher.
1956 Support Level was tested on Thursday last week and held the market up again setting up the 1956 as a significant support level for the present rally. A close back below 1956 would make the present rally suspect and advise to trade to the downside. 1956 is NOT a significant support level for the bull market in general but it is for the market being able to continue higher into August.
Support levels at present are 1956 which is medium support and pivotal to the market direction continuing higher. 1930 and 1919 are both light support and would most likely just delay a strong pullback by a day at most. 1870 and 1840 are strong support. 1870 and 1840 at present mark important trading levels for investors. Both are now below the 100 day exponential moving average (EMA) so any pullback this summer which breaks 1870 should be used as a signal to commence picking up ultra short ETFs or spy put options 2 months out for a bigger move lower. A break below 1840 at present would challenge the 200 day EMA.
I have repeatedly mentioned two other support levels, namely 1775 and 1750. As the market continues to push higher, these are now absolutely critical support levels. 1775 is important but 1750 is now the bottom line. A break of 1750 would mark a severe correction of 230 points which is below a 10% correction which 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 as there are no signs of any impending correction of that magnitude.
My Pullback Outlook: I have been waiting for a pull-back this summer to between 1870 to 1919. The break in the chart pattern I mentioned above (Points A, B, C, and D) is beginning to show signs of returning to previous patterns which would be bullish for stocks and bearish for my pullback outlook.
Momentum: For Momentum I am using the 10 period. Momentum has been the best indicator, replacing MACD as the most accurate indicator. Momentum turned positive on Tuesday.
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 sell signal on July 8 and the sell signal is still active today.
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 and moving higher.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change is still positive and trending sideways.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. As the Slow Stochastic tries to predict the market direction further out than just one day, it has now turned positive and is beginning to be 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 at the close yesterday was on the verge of a sell signal but today’s move higher has changed the outlook to positive, higher and overbought.
Market Direction Outlook And Strategy for July 23 2014
Today’s movement higher on better volume is the kind of signal investors are looking for. With just MACD negative and all the other market direction technical indicators positive, the outlook is for stocks to move higher still.
Wednesday’s morning may have a weak start as investors mull over Apple and Microsoft earnings which in general were just okay. By the end of the day however I am expecting a higher close even if just marginally.
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