The market direction outlook for Tuesday was unchanged from the outlook for Monday. The market is overbought and trending sideways. I am expecting a pull-back although there are catalysts that could push the market higher rather than lower. In Europe the inflation rate is non-existent and that could be enough to push the ECB into lowering interest rates to almost zero. That would definitely get investors buying stocks. The second catalyst could be this week with the release of the unemployment numbers on Friday. Many economists are looking for 219,000 to 250,000 jobs to be created. That kind of number could move stocks as well.
In general though stocks are drifting sideways as investors wait for further statistics and the jobs numbers to come in on Friday. Today the factory orders came in at a gain of 0.7 percent which was above the outlook for 0.6 percent. General Motors also released sales figures showing a 13 percent rise while Ford showed a gain of 3 percent and a drop of 4 percent for truck sales.
Market Direction S&P Intraday Chart June 3 2014
The intraday chart for June 3 shows the tight range stocks traded in. The morning first half hour actually set the entire range for the day. The open saw stocks fall to 1919 and then rally back to 1924 by 10:00 AM. They then turned back down reaching 1919 again just before the lunch hour. The rest of the day stocks slowly worked their way back up to 1924 where the market closed. You can tell that stocks are in a holding pattern as investors prepare for the ECB interest rate decision and the jobs numbers on Friday.
Advance Declines For June 3 2014
New lows today came in at just 28 but new highs fell back below 200 with 156 new highs for the day. 60% of stocks were declining and 37% were advancing. Volume was up slightly with 2.8 billion shares trading. Overall though these are low volume numbers. I found it interesting that a survey reported by CNBC found that the number of active small investors was down 19% year over year. Such a drop can be seen in the daily volumes.
Market Direction Closings For June 3 2014
The S&P closed at 1924.24 down just 0.73. The Dow closed at 16,722.34 down 21.29. The NASDAQ closed at 4234.08 down 3.12.
The IWM Russell small cap ETF fell 27 cents to close at $111.98
Market Direction Technical Indicators At The Close of June 3 2014
Let’s review the market direction technical indicators at the close of June 3 2014 on the S&P 500 and view the market direction outlook for June 4 2014.
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 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.
At present I am still expecting a pull-back to look for support around the 1897 level.
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.
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 buy signal continues to stay positive but is not climbing.
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 remains very overbought.
Rate Of Change is set for a 21 period. The rate of change remains positive but is largely moving sideways indicating weak buying pressure but very little new capital being used.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling market direction is neutral and it is extremely 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 now neutral and it too is extremely overbought.
Market Direction Outlook And Strategy for June 4 2014
The outlook remains unchanged. I was asked this evening by an investor if I thought the market could consolidate at around 1924. While anything is possible, I believe after 3 days of the S&P clinging to 1924, that it is rare to see a market consolidate at the top end. Normally the market pulls back slightly as it tries to consolidate gains. I think the technicals still look like a pullback to around 1897 could happen even if the jobs numbers are good. The slashing of interest rates in Europe if it does occur could however push the market higher without building any kind of support at present.
For Wednesday my outlook is unchanged. The stochastic indicators are now neutral and the Ultimate Oscillator is extremely overbought.
My outlook from yesterday is the same outlook for tomorrow. So to repeat yesterday’s market outlook, I remain cautious in placing more capital into Put Selling until I see a clear indication that the market can continue to move higher. I did however sell puts on Nucor Stock today as I like the stock and on May 30 I had indicated I would be adding additional contracts if Nucor moved lower.
At present the market looks over extended with sideways being the main direction. Overall I would expect a pull-back shortly.
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