The market direction outlook for Friday was for stocks to open weak and move lower. The outlook though was not for as large a move lower as was experienced. Instead the poor showing from Amazon and VISA spread to other companies including American Express, Boeing, Exxon, Nike, United Health Group and others. This dropped all the indexes with the Dow being hit the most falling 0.72% while the S&P and NASDAQ pulled back half a percent.
Market Direction S&P Intraday Chart July 25 2014
The one minute intraday chart below shows Friday’s selling. In my intraday comments on Friday I indicated that as long as the S&P stayed above 1975, the trend for the final week of July should be higher. You can see the choppy day we had on Friday. By 11:00 AM stocks were down just below 1975 but this sparked a rally which pushed stocks back to 1980. 1980 though seemed tough for investors to push beyond and the afternoon saw the market test 1976 three times before closing at 1978.34, well above 1975.
Advance Declines For July 25 2014
Volume was poor on Friday with just 2.6 billion shares traded. Down volume made up 66% with 39 new lows versus 78 new highs. Declining issues were 64% of all issues being traded. Friday was definitely a down day.
Market Direction Closings For July 25 2014
The S&P closed at 1978.34 down 9.64. The Dow closed at 16,960.57 down 123.23 but off the morning lows although still down below 17000. The NASDAQ closed at 4449.56 down 22.54. The NASDAQ could have been lower as Amazon lost almost 10% by the close but other tech giants, Apple and Microsoft did not fall helping to support the index.
The Russell 2000 IWM ETF closed down $1.04 for the worst loss of the day at 0.91% and closing at $113.60.
Market Direction Technical Indicators At The Close of July 25 2014
Let’s review the market direction technical indicators at the close of July 25 2014 on the S&P 500 and view the market direction outlook for July 28 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 continues to be experiencing trouble. The strength of the rally at present is poor in relation to the past rallies after a period of weakness.
1975 Support: There is a new support level developing at 1975 in the S&P. I have marked it in the chart above. While very light support, it is important for the market to stay at or above this level. You can see that 1975 has been retested a number of times over the past couple of weeks. If the market at this point should close below it, than the market will quickly fall to 1956.
1956 Support Level has been tested in the past and has become a significant support level for the present rally. A close back below 1956 would end the present rally and I would 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. The latest bout of weakness may be the start of a possible pullback for August. The biggest problem still facing the market is that too many analysts are waiting for a correction and the number of bullish investors is low. The latest sentiment poll shows almost an even division between neutral, bullish and bearish investors. It is rare when a market top or even a significant pullback commences with such numbers.
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 and stubbornly refuses to move positive. This means that for almost the entire month of July MACD has been negative and refuses to support the push higher for the S&P.
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 but no longer overbought.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change is still positive but trending sideways showing that no new capital is being put into the market at present but investors are not selling their positions just yet.
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. On Friday the Slow Stochastic indicated that market direction is lower.
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 signaling a lower day for Monday.
Market Direction Outlook And Strategy for July 28 2014
Volume was poor on Friday. At present almost every pullback has had low volume while the rebounds have had higher volume. This is part of the reason any dips have not turned into more serious pullbacks. Investors remain convinced that stocks have further to rise and they are adamant about selling out at present.
Meanwhile the technical indicators are back mixed. MACD is definitely negative and the Slow Stochastic and Fast Stochastic have both turned negative. The other three indicators are positive. With a 50/50 split for Monday I would have to think the market direction is set for a weak opening, possibly a sideways lunch hour and afternoon and then a slightly lower close. I see nothing at present that would advise me to change my trading. I am continuing to look for opportunities and enter them and Monday should provide a few more profits.
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