Market Direction Outlook For July 25 2014 – Weak and Slightly Lower

The market direction outlook for Thursday was for stocks to open weak but close positive. I was not expecting much movement in the index for Thursday. The day started off well enough with the Weekly Initial Unemployment Insurance Claims coming in at the lowest level since 2006. Earnings also came in strong which you can read about in my morning comments from earlier today.

Market Direction S&P Intraday Chart July 24 2014

The one minute intraday chart below shows the day’s activity. I had felt that the weakness stocks saw on Wednesday into the close would continue into Thursday’s open. Indeed stocks did try to rally but instead they sold lower and by 10:00 they were sitting at 1985.86 which ended up being the morning low. From there investors stages a rally which took the S&P over 1991. After trending sideways through the start of the lunch hour stocks began to dip. Stocks then commenced a series of lower highs which by 3:00 PM saw stocks sell-off back to the same morning low. With the day’s rise wiped out, investors stepped back in for the last hour and managed a meager close, but the close was positive which was all I was looking for on the day.

Market Direction intraday July 24 2014

Advance Declines For July 24 2014

The morning started off well for volume, but advancing issues were not far ahead of declining issues. The morning numbers are in my morning comments. By the close volume was up at 3.2 billion, higher than yesterday. New highs came in at 197 and new lows at 17 which were good numbers for the bulls, but advancing issues were just 45% while declining issues made up 51% of the shares traded. Meanwhile up volume was 54% while down volume was 45%.

Overall the market direction was more sideways than up or down.

Market Direction Closings For July 24 2014

The S&P closed at 1987.98 up just 0.97 and below the early morning gains.  The Dow closed at 17,083.80 down 2.83 and really never got going all day. The NASDAQ closed at 4472.11 down just 1.59.

The Russell 2000 IWM ETF closed down just 22 cents at $114.64

Market Direction Technical Indicators At The Close of July 24 2014

Let’s review the market direction technical indicators at the close of July 24 2014 on the S&P 500 and view the market direction outlook for July 25 2014.

Market Direction Technical Analysis for July 24 2014

Stock Chart Comments: I have been commenting for more than a week now 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. All the patterns except for D are basically identical. The present rally is not following the same pattern as the previous dips. The strength of the rally at present is poor in relation to the past rallies after a period of weakness.

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.

The other two support levels to mention are 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.  While the past couple of days is trying to return the present rally back into a pattern similar to A,B and C in the chart above, the present pattern is not the same and as such stocks could be about to pullback which might start the weakness for August, which I have waited for.

Momentum: For Momentum I am using the 10 period. Momentum has been the best indicator, replacing MACD as the most accurate indicator. Momentum is continuing positive.

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 although it slowly continues to weaken.

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 overbought.

Rate of Change: Rate Of Change is set for a 21 period. The rate of change is still positive and back 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 stayed positive for stocks again today. It is 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 is also signaling that stocks are headed higher and it too is overbought.

Market Direction Outlook And Strategy for July 25 2014

It was nice to see volume rise today, but overall the strength of rising issues was poor. The market direction was definitely under pressure and the overbought signals from the technical indicators are having an effect on the market direction.

While the indicators are all positive except for MACD, there are enough signs to advise that we may see some further weakness for stocks on Friday. Looking at the Fast Stochastic you can see the indicators are turning back down. Meanwhile the rate of change is back stuck sideways. The Slow Stochastic and Ultimate Oscillator are very overbought as is the Fast Stochastic.

With the market so heavily overbought stock can of course move higher, but I believe the outlook for Friday is for stocks to trend sideways and close down slightly.

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