The market direction outlook for Wednesday was for stocks to continue to push higher. This didn’t happen. Instead stocks moved sideways for most of the day and then fell lower into the close. The problem on Wednesday for stocks was the news from the Labor Department that producer price index was up 0.6 percent from March to April which was a further gain from the previous month. The gain seemed to spook investors who felt they saw rising interest rates in the near future. Meanwhile John Deere reported a 9.5 percent decline in net income along with an 8.9 percent decline in revenue. Those numbers also weighed on investors who took it as a reminder that revenue in general has been on the weak side.
Market Direction S&P Intraday Chart May 14 2014
The 1 minute chart for Wednesday shows just how sideways the day was. It was not until the last hour that investors decided to take profits.
While analysts talked about the sell-off late in the day, none mentioned how common this has become the day after a high is reached. For example if we look at the past three months you can see how each high was immediately followed by a pullback. The red arrows in the chart below show the high being reached and the blue arrows show the immediate reaction to the high. This action today could signal that the S&P will turn back sideways for a couple of days or possibly just until Thursday and then move back higher.
Advance Declines For May 14 2014
The advance decline ratio once again showed a lack of conviction. Advancing issues were just 37% while decliners were 60%. New highs fell from yesterday’s 162 to just 90 while new lows rose only moderately from 66 to 70. The numbers still show a lack of breadth in the market and little strength but at the same time there is no strong selling conviction either.
Market Direction Closings For May 14 2014
The S&P closed at 1888.53 down 8.92. The Dow closed at 16,613.97 down 101.47. The NASDAQ closed at 4100.63 down 29.54
The Russell 2000 ETF, IWM, gave back $1.81 today falling convincingly below $110 to close at $109.62
Market Direction Technical Indicators At The Close of May 14 2014
Let’s review the market direction technical indicators at the close of May 14 2014 on the S&P 500 and view the market direction outlook for May 15 2014.
The 1750 level continues to hold the S&P up since the correction ended in early February. Levels above 1800 have regained support with two levels now in play. The first is back at 1840 where once again there is enough strength at that level to hold stocks probably for 2 to 3 days of selling. The next level is at 1870 which is lighter support but probably enough for the S&P to break through 1900 which occurred intraday on Tuesday before investors sold the S&P back down. Today the S&P was pushed lower but remains within easy striking distance of a new high.
Meanwhile I am still expecting that at some point in the spring to summer period stocks will correct down to the 1750 level or close to that level. 1750 would mark a decline of 7.8% which is well within the confines of a normal market correction.
For Momentum I am using the 10 period. Momentum has been the best indicator over the past four months, replacing MACD as the most accurate indicator. Momentum is still positive but is continuing to fall indicating that it does not support the recent rally.
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 April 22. Today that signal slipped a bit although MACD is still positive.
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 has pulled back from overbought readings.
Rate Of Change is set for a 21 period. The rate of change is still positive but moving lower..
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 remains 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 for Thursday is lower. It is extremely overbought.
Market Direction Outlook And Strategy for May 15 2014
The market direction technical indicators becoming more mixed. Only the Fast Stochastic is signaling the market direction is lower, but 4 of the positive indicators are falling. The outlook for Thursday is for stocks to move sideways, based on the technical indicators. The bias is for lower valuations in stocks on Thursday.
The biggest problem for the S&P and Dow is the NASDAQ and the Russell 2000 (IWM) which are both signaling that they are in trouble. The NASDAQ continues to have trouble recovering and the small cap ETF IWM, is back below the 200 day exponential moving average (EMA).
There is definitely trouble here, but while stocks can correct they are also sitting right at their highs and remain resilient. Right now the outlook is more sideways than down. That does not mean stocks cannot move lower, but it does mean that stock pull backs are still opportunities for additional trades.
For Thursday then look for stocks to turn sideways with a slight bias to the downside.
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