The market direction outlook for Friday was for stocks to attempt to rally which they did. Part of the reasoning was the extreme oversold condition the markets are in. By Friday afternoon though much of the overbought environment was gone from stocks. This could set the stage for a higher move on Monday or a further pull back. Let’s take a look at the technical indicators to see the outlook.
Market Direction S&P Intraday Chart June 13 2014
The intraday 1 minute chart for June 13 shows a choppy start on Friday and then an early morning drop. From there we got the usual morning trade, this time a rally to above 1935. Investors should be watching for this trade potential every morning. From there the market drifted sideways for much of the afternoon with no strength to any selling. The close was above 1935 which I had indicated on Thursday was a point of strength for the market.
Advance Declines For June 13 2014
New highs once again came in at 95 down slightly from Thursday’s but new lows are still anemic coming in at just 13. 56% stocks were advancingwhile 41% were declining. Volume was lower at 2.6 billion shares.
Market Direction Closings For June 13 2014
The S&P closed at 1936.16 up 6.05. The Dow closed at 16,775.74 up 41.55. The NASDAQ closed at 4310.65 up 13.02.
The Russell 2000 IWM ETF was up 20 cents to close at $115.59.
Market Direction Technical Indicators At The Close of June 13 2014
Let’s review the market direction technical indicators at the close of June 13 2014 on the S&P 500 and view the market direction outlook for June 16 2014.
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. 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 but has declined significantly.
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 considerably weaker now and could with another 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 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 up remaining 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 16 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 Monday.
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 Monday, the technical indicators are continuing to show weakness in stocks despite the move higher on Friday. Friday could have just been a reaction to the two heavy days of selling but the move back did not seem like a bounce on Friday. With 4 to 2 in favor of the market not falling on Monday it looks like Monday could be a sideways day with a slight bias to the upside. Much will depend on the fighting in Iraq as well as tensions in the Ukraine.
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