The market direction outlook for Monday was a 50/50 outlook. Basically a 50 % chance of a slightly higher close and a 50% chance of a slightly lower close. The market direction started off under pressure from the beginning of the day primarily due to the EU accord to put in place sanctions against Russia over their involvement in the Ukraine. This saw European markets lower by the time North American markets opened.
Market Direction S&P Intraday Chart July 28 2014
You can see today’s activity in the one minute intraday S&P chart below. The morning sell-off took the S&P all the way down to 1967.31. The S&P easily slipped through light support which has been building at 1975. Within minutes of the morning selling the S&P began a recovery which took the market direction up to 1975. After two hours of trending sideways along the 1975 support line, investors bought back in and pushed still higher to 1981.52. From there the market drifted slightly lower to close at 1978.91 a gain on the day of just 0.57 but a gain nonetheless. The recovery from the morning low was exciting to watch.
The most important aspect of the day today was the S&P closing above support at 1975. This continues to support a rally higher for stocks.
Advance Declines For July 28 2014
Volume picked up slightly on Monday to 2.8 billion shares from Friday’s 2.6 billion. Overall volume was 57% down with 41% of shares being traded higher. 55% of all issues were declining on Monday. New lows are creeping higher with 55 new lows versus 77 new highs. New highs matched Friday’s 78 new highs. Monday was definitely a weak day despite the indexes recovering from the early morning sell-off.
Market Direction Closings For July 28 2014
The S&P closed at 1978.91 up 0.57. The Dow closed at 16,982.99 up 22.02 but during the day investors pushed the index to 17001. The NASDAQ closed at 4444.91 down 4.65.
The Russell 2000 IWM ETF closed down 0.57 cents for a loss of half a percent closing at $113.03. The Russell 2000 again had the worst day of the 4 indexes I follow.
Market Direction Technical Indicators At The Close of July 28 2014
Let’s review the market direction technical indicators at the close of July 28 2014 on the S&P 500 and view the market direction outlook for July 29 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. Note how the present rally (D) is continuing to have trouble establishing the same pattern as A, B and C. The market continues to struggle and while the market direction does remain up, you can see how difficult it is for the S&P this time around. We are seeing a lot more dips and sell-off days in July than previous months.
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 and was tested again today. 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. While media outlets continue to write about an impending crash here, eventually they will be right but at the present time there are far too many bearish investors for a major correction. Large corrections occur when they are least expected and normally have a catalyst that few investors spot.
Momentum: For Momentum I am using the 10 period. Momentum has been the best indicator, replacing MACD as the most accurate indicator. Momentum is pretty well neutral now and one more sideways or down day and it will turn negative.
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 as it moves sideways.
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. Today (Monday) that same signal is evident. That means if the Slow Stochastic is correct we should see lower values by mid-week.
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 on Friday was signaling down. Today that signal remains indicating that Tuesday should be a down day for stocks.
Market Direction Outlook And Strategy for July 29 2014
Technically the market remains split. Three signals are negative and continue to stubbornly advise that the next move will be lower for stocks. 3 other indicators are positive but continue to be weak. We are back to a split outlook which was the same outlook on Friday at the close.
The rebound from this morning’s low was nice to see but volume remains poor and stocks cannot keep climbing on low volume.
For Tuesday then the outlook is unchanged from Friday. The market direction is mixed with a 50% chance of a slightly higher close and a 50% chance of a lower close. Until the market direction falls back below 1765 I am not concerned about the daily gyrations of the S&P. I am continuing to look for opportunities and as you saw today, I am taking advantage of them when I find them.
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