The market direction outlook for Wednesday was unchanged from the outlook for Monday. The market continues to be overbought and trending sideways. I am expecting a pull-back although there are catalysts that could push the market higher rather than lower. Tomorrow we get two such possible catalysts. The first is the interest rate decision from the ECB. I think the chance of the ECB cutting rates is almost 99%. European economies have slowed, particularly those economies that were doing better, like Germany. I think an interest rate cut will boost stocks and possibly lead to a further rally even without additional support. The second catalyst tomorrow are the Weekly Initial Unemployment Insurance Claims which if they come in at around 300,000 should help the market direction keep an upward bias.
Friday is the biggest catalysts of them all, the unemployment numbers.
Meanwhile the ISM numbers for May came in at 56.3 which was better than the anticipated 55.5. It definitely assisted in pushing stocks higher including a new all-time closing high for the S&P. Tempering this was the ADP National Employment Report showing that 179,000 private sector jobs had been created rather than the expected 210,000 in May. This has a lot of analysts guessing about Friday’s jobless numbers.
Market Direction S&P Intraday Chart June 4 2014
The intraday chart for June 4 paints a different picture from yesterday’s tight range. The open saw a small amount of weakness but buyers stepped in almost immediately and pushed the S&P to a high around 1922. This is marked as the first push higher in the chart below. When that high held, investors pushed still higher reaching just above 1926. From there the market wandered slightly higher to above 1928 before closing at a new all time high of 1927.88.
Advance Declines For June 4 2014
New lows today came in at just 23 but new highs moved back up to 177. 50% of stocks were advancing today while 46% were declining. Volume was unchanged at 2.8 billion shares trading. Once again we are seeing low volume numbers, somewhat poor breadth but investors continue to keep pressuring stocks to move higher.
Market Direction Closings For June 4 2014
The S&P closed at 1927.88 up 3.64. The Dow closed at 16,737.53 up 15.19. The NASDAQ closed at 4251.64 up 17.56.
Even the IWM ETF, Russell small cap managed to push higher closing up 44 cents at $112.42.
Market Direction Technical Indicators At The Close of June 4 2014
Let’s review the market direction technical indicators at the close of June 4 2014 on the S&P 500 and view the market direction outlook for June 5 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, however if you look at the chart above you can see that the S&P may be trying to create a support level around 1919. WHile at present there is not any real support worth mentioning, it does appear there may be some support starting to build. My personal outlook is that the market will pull back to 1897 and then decide whether to move higher or lower, but I still think a pull back is in the works. That said, one cannot ignore the chart pattern that is being formed.
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 and today started to move higher which indicates more fresh capital is coming into the market..
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 5 2014
The outlook remains unchanged. The week so far has basically been a sideways move. Neither the selling or the push high today is significant. The moves are minimum and are obviously just investors adjusting positions and doing a few trades. This may change tomorrow with the ECB interest rate announcement. I am expecting a decline in interest rates and a push higher for stocks.
The market direction technical indicators are 4 to 2 positive so any move up could be somewhat dramatic and draw in a lot of investors who are waiting on the sidelines. Meanwhile though I am still expecting a pull back to the 1897 valuation but I could just as easily be wrong. One thing that is somewhat bothersome is the growing number of analysts who are also looking for a pull back. The majority are never right. With more and more looking for a correction, we could all be wrong.
At present the market looks over extended with sideways being the main direction. Overall I would expect a pull-back shortly but if the announcement is lower interest rates for Europe, then stocks will move higher..
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