The market direction outlook for Thursday was for stocks to continue weak. While there were a number of reports today that assisted in keeping stocks weak, the biggest culprit was the tension in the middle east as fighting continues in Iraq. With oil jumping in price followed by gold you can’t blame investors for taking some profits here. However there are no real signals at this stage to suggest this is the start of a bigger correction. With two big down days in a row the media was all over the pull-back as a sign the market has topped out. But since the VIX Index was first introduced there has never been a time when the market topped with the VIX Index as low as it is presently. I was surprised at how analysts interviewed on CNBC talked about the market falling all the way to 1860 within days. Let’s look at some of the indicators I follow and see what the present situation is.
Market Direction S&P Intraday Chart June 12 2014
The intraday 1 minute chart for June 12 still does not show a panicking market. Instead the market is choppy, which is to be expected but not overly so. The morning saw a seesaw type decline which ended at 1935. Investors staged two rallies both of which could not recapture the morning open and each of which was lower than the previous. The 1935 level broke in the early afternoon and the market drifted lower and then spiked down to 1926 before pushing back up to 1930. I wrote in my intraday comments the importance of the market direction holding above 1935. It was unable to which normally means more selling still is ahead.
Advance Declines For June 12 2014
Once again despite the selling, there were only 8 new lows matching yesterday’s number. New highs once again came in at 104 matching yesterday’s new highs. 56% stocks were declining while 41% were advancing. This is actually higher than yesterday for advancing issues. Volume was higher today at 3 billion shares and down volume swamped up volume by 2 to 1. Still, these numbers are not the signs of a major correction starting.
Market Direction Closings For June 12 2014
The S&P closed at 1930.11 down 13.78. The Dow closed at 16,734.19 down 109.69. The NASDAQ closed at 4297.63 down 34.30.
The Russell 2000 was down 71 cents to close at $115.39.
Market Direction Technical Indicators At The Close of June 12 2014
Let’s review the market direction technical indicators at the close of June 12 2014 on the S&P 500 and view the market direction outlook for June 13 2014.
The selling today was more reaction to the Iraq fighting than much else. The decline though should have been expected since there is no support in the S&P except down at 1870.
I keep mentioning the same 4 key support levels, night after night but it is important to understand how to invest based on those support levels. So I will keep the same information in this section until there is a change. With the market continuing to break into new all-time highs, there are now four key support levels in the market. Long-term support is at 1750. If that level should break at this point, it would mean a significant correction would ensue. The second level of support is at 1775 which again is good support and if it broke would mean that the market direction would quickly collapse down to 1750. These two indicators are good values to use for longer-term trading. As long as stocks stay above these levels, there is no concern the markets will experience any kind of severe pullback. The 1775 and 1750 levels are both now below the 200 day exponential moving average (EMA).
The next two levels are at 1840 and 1870. At this point with the S&P above 1900, any pull back to 1870 would be a signal to pick up short instruments like the SDOW or SQQQ ETFs or spy put options. If 1870 were breached it would mean a further break lower to at least the 1840 level and for investors it would be a quick and easy trade to pick up short products to enjoy some profits down to 1840. If 1840 were to break at this point it would mean to roll any at the money puts lower and roll down covered calls but only if 1840 were to break. Between 1840 and 1775 there is very little to no support.
My outlook for a pull-back is unchanged. I still expect to see the market test to find support at some point over the summer months and with no support in place except at 1870, I believe the market may try to build support at 1919 or between 1919 and 1870. Unless the market can break through 1870 I see no reason to curtail my trading activity.
For Momentum I am using the 10 period. Momentum has been the best indicator over the past five months, replacing MACD as the most accurate indicator. Momentum is positive and continuing to decline.
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 a buy signal on May 23. The MACD signal is weakening considerably now and could with another heavy down day, issue a sell signal.
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 continuing positive but after today’s downturn it is no longer overbought.
Rate Of Change is set for a 21 period. The rate of change remains positive and is still supporting the recent break out of the S&P above 1900. Today it turned more sideways than up or down and remained positive.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling market direction down and it is now just overbought.
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 is signaling that the market direction is down and it too is now just overbought.
Market Direction Outlook And Strategy for June 13 2014
The market direction technical indicators are still 4 to 2 that stocks will continue their advance. There are though signs that the push to the upside has lost steam as all the indicators except the rate of change are moving considerably lower. This then reflects weakness in stocks which according to the indicators will continue Friday.
There has been no change in my trading at this point. I am continuing to trade but staying far enough out to assist in the event that stocks pull back somewhat. I am not expecting a major correction. There are no signals that a major correction is about to occur. Instead I am looking for the market direction to pull back to consolidate recent gains and prepare to push higher.
For Friday, the technical indicators are continuing to show weakness in stocks but with two big down days now behind the market we could see a sideways movement with a slight push back. I am expecting at least an attempt rally back at the open and then perhaps more selling.
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