The market direction outlook for Thursday was for a weak morning but a higher close. Instead the weakness lasted beyond the morning until just after the lunch hour. The reaction yesterday from the Fed comments was overdone, obviously, and today investors took a breather to contemplate the afternoon over-reaction and the Fed outlook on both inflation, housing and unemployment. All of these factored into Yellen’s comments on interest rates. Many analysts today after reviewing her comments felt that basically she actually told investors nothing new. No new time-table for interest rate hikes and no new projections as to when they expect housing to improve as well as unemployment. Basically many analysts felt that after reviewing the Fed comments from yesterday there was actually nothing new. Today a lot of investors seems to be of the same opinion after yesterday’s run up. We have seen this many times in the past years with comments from Bernanke when stocks would run higher and then within a day or two investors would have doubts and sell the market back down to where it was prior to the Fed comments.
Market Direction S&P Intraday Chart June 19 2014
The intraday chart for today is at 5 minutes. I wanted to show today’s chart in 5 minutes to show just how sideways the day was until the Fed comments and then the immediate reaction and move higher. What is interesting is how the market was already racing higher even before Yellen started to speak and answer questions. There was no mistakes this time from Yellen in her comments. She never strayed from her stance on an accommodative approach to the economy which translates into, to stocks. This made the push higher all the more pronounced.
Advance Declines For June 19 2014
As expressed in my market direction comments yesterday, I was expecting the new highs to expand beyond 200. On Thursday the new highs came in at 252 despite the sideways direction and new lows were just 8. These are the numbers to check during the day. When the market drifts sideways during the day, check the new highs and new lows. Often you will see the underlying direction which is why I entered the market direction portfolio and again, it is also why I adjusted the stop-loss on the TQQQ when the market moved a bit too low and could have stopped out my position. The same applies to the purchase of more UDOW shares in the early afternoon dip. While the index was dipping, the number of new highs was climbing, a sure sign that the underlying direction was up.
Advancing issues made up 55% of trades while 44% of stocks were declining. Volume was almost 3 billion coming close to matching yesterday’s volume.
Market Direction Closings For June 19 2014
The S&P closed at 1959.48 up 2.50. The Dow closed at 16,921.46 up 14.84. The NASDAQ closed at 4359.33 down 3.51.
The Russell 2000 IWM ETF was up 10 cents to close at $117.86.
Market Direction Technical Indicators At The Close of June 19 2014
Let’s review the market direction technical indicators at the close of June 19 2014 on the S&P 500 and view the market direction outlook for June 20 2014.
Stock Chart Comments: There are no changes to the chart comments. There is a new light support level at 1930. This is very weak support but based on technical readings, there is some reason to expect light support at that level. Stocks traded hands regularly there for several days and each time the S&P dipped back to 1930, investors were busy buying. While a correction at this point would definitely wipe out 1930, it would still delay a pull-back.
Aside from 1930 the support levels are 1919 – which again is light support, 1870 which is strong support, 1840 also strong support. Those two support levels, 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 1820 at present.
I have repeatedly mentioned two other support levels, namely 1775 and 1750. Both are critical support levels. 1775 is important but 1750 is now the bottom line. A break of that would mark a severe correction of 10.5% 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 an anticipating as there are no signs of any impending correction.
My Pull-Back Outlook: I have been waiting for a pull-back this summer to between 1870 to 1919 and so far there have been very few signs but the summer is only beginning.. However the VIX Index closed at 10.61 and never in its history has the market made a top when the VIX Index was low. Shortly we will get second quarter earnings. If earnings are strong and beat estimates we may not see a pull-back until perhaps late summer.
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 positive and moving sideways.
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 a buy signal on June 18 which was confirmed by a second weak signal on Thursday..
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 continuing positive and is again overbought.
Rate of Change: 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. The readings continue to stay strong with a reading of 3.78..
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling market direction is up and it is 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 is signaling that the market direction is up for the third day and it is now extremely overbought.
Market Direction Outlook And Strategy for June 20 2014
Today was basically a consolidation day. The markets moved more sideways than up or down following yesterday’s late day rally. Investors tend to get enthused with Fed comments or unemployment numbers. This is natural as stocks are an emotional investment for most investors. Today though a lot of investors were repositioned some of their trades. The number of new highs today though was excellent at 252 which shows that despite the sideways market, the trend is still higher.
The technical indicators are all pointing up although some are weaker than others.
For Friday we could see some weakness again in the morning but the day should end with a positive close. The wild card on Friday could be the price of gold which jumped over $41 to close at $1314.10. This is one of the largest jumps this year in the precious metal and shows the growing concern with Iraq and the fighting in the Ukraine. This wild card could be a catalyst to pull back stocks on Friday and should be watched.
Market Direction Internal Links
Profiting From Understanding Market Direction (Articles Index)
Understanding Short-Term Signals
Market Direction Portfolio Trades (Members)