The market direction outlook for Friday was for the employment numbers to move stocks higher but I felt the overbought condition would pull stocks back into a negative close. This did not happen and instead investors took the news of the employment increase well. After hours the news that Carl Icahn had bought into Family Dollar Stores stock moved that stock higher and for Monday Apple Stock commences trading after 7 to 1 split. It would seem that Monday is setting up to be an interesting day. Let’s look at Friday’s intraday chart.
Market Direction S&P Intraday Chart June 6 2014
The intraday chart for June 6 shows that from the open the market was ready to rally. There were three sharp rallies before 11:00 AM. By 11:00 AM the market direction had reached the intraday high and the afternoon was spent trending sideways. A short sell-off near the close took the market direction back lower but the low was still higher than the 1st and 2nd rally. Investors then jumped in on this little dip and pushed the market back up to close near the highs for the day. All in all it was a bullish day.
Advance Declines For June 6 2014
New highs came in at 356. This is the type of new high numbers I have been watching for. For weeks the market direction higher has turned out new 52 week high numbers below 100. Friday’s number is far more in keeping with a rally to new highs. There were only 8 new lows. Quite the astounding turn around with the market direction up being so heavily bought. 72% of all issues were advancing and 25% declining. Volume was lower at just 2.9 billion shares.
Market Direction Closings For June 6 2014
The S&P closed at 1949.44 up 8.98. The Dow closed at 16,924.28 up 88.17. The NASDAQ closed at 4321.40 up 25.17
The Russell 2000 tacked on another $1.10 to close at $115.88
Market Direction Technical Indicators At The Close of June 6 2014
Let’s review the market direction technical indicators at the close of June 6 2014 on the S&P 500 and view the market direction outlook for June 9 2014.
There is little new to mention in the support levels. 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. At present however there is no support at 1919 or anywhere above 1870. The market is now up 79 points above major support. At some point it will move lower to set up another support level. I believe that support level could end up being somewhere between 1897 and 1919.
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 strong.
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 continues to point to higher valuations in the S&P.
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 extremely overbought.
Rate Of Change is set for a 21 period. The rate of change remains positive and continued moving higher which indicates more fresh capital is coming into the market. This is typical when the S&P breaks out as it has done over the past three days.
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 to up 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 to up as well and it too is extremely overbought.
Market Direction Outlook And Strategy for June 9 2014
With the jobs numbers behind us and the ECB rate decision finished, the market will need further catalysts to move higher. The Apple Stock split could be a catalyst for stocks on Monday. As well the news of Icahn buying into FDO stock emboldens a lot of investors for is Icahn is buying stock then obviously he is not concerned about a correction. Other investors may follow his lead.
My opinion is unchanged looking at the market direction up. The market is extremely overbought and resting without any support save that down around the 1870 level. This is a full 79 points lower which would mean a 4% correction. There are no indications that such a correction will occur. Instead it appears that the market may try to develop support around the 1919 to 1897 level. This would represent just a 1.5% pull back.
So far the adage “sell in May” has been wrong and stocks continue the best advance in weeks. An overbought market can move higher and often does but I have not seen many markets as severely overbought as the present market is. I believe this week may prove harder for stocks to move higher.
For Monday the technical indicators are all pointing to higher prices except for the two stochastic indicators which are neutral with a slight up bias. Technically then the markets looks ready to move still higher but the warning signs are still with the market as it keeps climbing. I would not expect any kind of severe correction, but certainly a pull-back to find where there is some support for stocks.
My strategies in use are still the same. I am not fully committed but I am continuing to look for trade possibilities such as the Facebook Stock trade and AT&T Trade I did late last week. For Monday the indicators are for a higher close even marginally. We could though see a pull back at any time.
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