Market Direction Outlook For July 9 2014 – Mixed With Bias Lower

As investors today waited for the earnings from Alcoa which unofficially starts the next quarterly earnings, the technical indicators showed there was enough strength in stocks to keep the market sideways and perhaps even have a slightly positive close. Instead news from Germany that pointed to a possible contraction in the economic growth worried investors. As well the OECD leading indicators showed that for the third straight month Germany’s economy was losing momentum. Coupled both of those reports with Monday’s selling and it was enough to make investors decide that taking profits was better than waiting for further possible bad news.

Market Direction S&P Intraday Chart July 8 2014

The one minute intraday chart for July 8 below shows that overall the market direction was not as choppy as previous sessions. Indeed while the selling was dominant throughout the day, there was no volatile movements and certainly no panic. It was orderly selling. The market actually traded within a tight range for most of the day between 1966 and 1960 on the low side. The close of 1963.71 while somewhat bearish for tomorrow as it failed to close above or at the 1966 level, still closed well off the lows for the day. In other words we are seeing profit taking on the markets at present but it could, as we all know, change rapidly so it bears watching.

SPX market direction intraday to Jul 08 2014

Advance Declines For July 8 2014

Volume on Tuesday picked up as 3.3 billion shares were traded. If volume had been lower than Monday it would be a sign that Wednesday could see a move back up. Instead volume today was high indicating more investors are being drawn into the selling.  Down volume made up 71% of today’s trades and there were just 52 new highs and 17 new lows. The down volume at 71% is almost as high as yesterday’s down volume but the number of declining issues was slightly lower at 59% so there was some interest in buying stock after the second day of downward pressure. All together, volume would indicate we could see more selling on Wednesday.

Market Direction Closings For July 8 2014

The S&P closed at 1963.71 down 13.94. The Dow closed at 16906.62 down 117.59. The NASDAQ closed at 4391.46 down 60.07.

The Russell 2000 IWM ETF closed down $1.43 for a loss of 1.21% to close at $116.34. The Russell 2000 is once again starting to show signs of selling pressure as investors who bought the last rally are beginning to get out of their stocks for what could be a second decline for the small caps.

Market Direction Technical Indicators At The Close of July 8 2014

Let’s review the market direction technical indicators at the close of July 8 2014 on the S&P 500 and view the market direction outlook for July 9 2014.

Market Direction Technical Analysis for July 8 2014

 

Stock Chart Comments: There are a number of things to report this evening. The first is that with today’s close stocks are within easy reach of testing the 1956 area. This is extremely light support but there should still be a bounce even if only for an hour.

Meanwhile we have a pattern that has been built up which we can consider using to assist in knowing when we should be buying more Short Ultra ETFs or Spy Put Options. The market in the move higher has continually set up a pattern of reaching new highs and then pulling back for a period of 2 days. On the third day stocks move sideways, stall, or start a move back up. I have marked this in the chart above as A, B, C, D. Point D is obviously the latest two down days. If on Wednesday we end lower, then it is possibly the start of another pullback for stocks. If that is the case I think the next move will be back to the 1930 valuation. I will be buying spy put options and Short ETFs tomorrow should the market continue the down move near the open.

Support levels at present are 1930 and 1919 which are light support. 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 move lower. A break below 1840 at present would challenge the 200 day EMA however at the rate the market is moving higher the 1840 and 1870 will soon be below the 200 day EMA which is sitting around 1825 at present.

I have repeatedly mentioned two other support levels, namely 1775 and 1750. As the market continues to push higher, these are now critical support levels. 1775 is important but 1750 is now the bottom line. A break of 1750 would mark a severe correction of 11% at present 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. At present about the only possible catalyst to the downside is poor earnings in the upcoming quarter which could catch many investors unprepared. The second catalyst we are now seeing develop is the slowdown in Europe and Germany particularly. For many investors this brings out concerns of possible deflation.

Momentum: For Momentum I am using the 10 period. Momentum has been the best indicator over the past eight  months, replacing MACD as the most accurate indicator. Momentum is now neutral and looks ready to turn negative on Wednesday if stocks continue lower.

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 buy signal on Thursday but it was not confirmed on Monday or today. Instead a sell signal was issued at the close today as MACD turned negative. This still needs confirmation tomorrow to be a confirm sell signal.

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 it is now falling even lower

Rate of Change: Rate Of Change is set for a 21 period. The rate of change remains positive but is continuing to fall back.

Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. Yesterday the Slow Stochastic signaled that the market direction was up for later this week. At the close today the Slow Stochastic changed that signal to a sell signal. It is still 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 yesterday issued a sell signal on the market direction. Today at the close the sell signal was a lot stronger and it is still overbought.

Market Direction Outlook And Strategy for July 9 2014

There are some indications now worth watching closely. If the market pulls back for a third day, it will have broken the pattern I mentioned in the Stock Chart Comments above. That will be a negative sign. Meanwhile the technical indicators are all starting to point lower. Of the 6 technical indicators, 3 are now signaling a sell sign, 1 is neutral and 2 are positive but are falling further. This would indicate that the direction for tomorrow is lower.

Meanwhile the NASDAQ was pushed lower today along with the Russell 2000. Both of these indexes had only just recovered from the last sell-off.

Finally, with the S&P now within about 5 points of the 1956 light support level, the market will probably want to test that support zone. The chance of the S&P holding the market at 1956 is slim. There is very little support at present as support was only starting to be built here. A break of 1956 would signaled that I should be buying Spy Put Options and Ultra Short ETFs. I will do both tomorrow should that happen.

Alcoa after hours reported better than expected earnings. This could help the market direction for Wednesday. Overall though, the indicators are pointing to further declines tomorrow. At the least I can say that with 3 negative indicators, 1 neutral and 2 still clinging to positive reading, the outlook could be mixed. But overall the market direction outlook is mixed with a bias lower.

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