The market direction outlook for Wednesday was for stocks to advance but as explained in yesterday’s outlook, the fast stochastic was warning that Wednesday could be a relatively flat day. With the S&P on Tuesday sitting at a record close profit-taking was to be expected. One of the clues for today was the relatively sideways action and limited losses. This tells investors that profit-taking was the main trading activity for today. To assist investors in profit-taking was news from economists who are worried that Europe is on the verge of deflation. While the US and Canada continue to show some inflation increases, economists worry that European production, consumer purchases and wages all point to deflation. Investors used this, plus the backdrop to tomorrow’s GDP and Weekly Initial Unemployment Insurance Claims reports as reasons for taking some profits. Let’s take a look at the intraday action.
Market Direction S&P Intraday Chart May 28 2014
The morning opened with a quick sharp drop which ended right around 1909.70 which actually ended the day as well. From there choppy action pushed the market direction down to a low of 1907.58 by 10:48. A rally then commenced which not surprisingly ran through the 11:00 AM period. I have explained many times that this is among the best rallies of the day for trading the Trading For Pennies Strategy. This evening I posted another trade for investors who are interested in following this trade.
From 11:00 AM the S&P went sideways around the 1912 level with a short sharp rally after 1:00 PM which took the S&P to new highs at 1914.46. A second rally in the later afternoon failed and investors sold lightly pressuring the S&P to close down at 1909.78, which as I explained, was the morning opening initial drop.
Advance Declines For May 28 2014
The jump to 232 new highs on Tuesday was not continued on Wednesday although new highs did come in at 163 while new lows were less than half that at 70. Up volume though was just 51% while down volume was 46%. Volume was again excellent at around 3 billion shares in total and almost evenly split with 1,417,839,000 shares heading higher and 1,478,805,813 shares heading lower.Monday’s volume of almost 4 billion shares was still higher than today’s volume of around 3 billion, but despite that, Wednesday’s volume was still better than most days last week.
Market Direction Closings For May 28 2014
The S&P closed at 1909.78 down just 2.13. The Dow closed at 16,633.18 down 42.32. The NASDAQ closed at 4225.07 down 11.99
The IWM Russell small cap ETF was down just 59 cents at $112.99 and still trending well at the moment.
Market Direction Technical Indicators At The Close of May 28 2014
Let’s review the market direction technical indicators at the close of May 28 2014 on the S&P 500 and view the market direction outlook for May 29 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 this point then, 1870 is actually more important than 1911 for those of us who sell puts for income. The market can wander all it wants but as long as it does not break 1870 then I will be taking advantage of any dips to continue put selling.
This is exactly what happened today with the market being weak. The dip opened up a number of Put Selling opportunities.
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. Today the buy signal continues to gain strength.
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 overbought.
Rate Of Change is set for a 21 period. The rate of change remains positive.
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.
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 and it is overbought.
Market Direction Outlook And Strategy for May 29 2014
Overall there is no change in any strategy being used. The trend up remains in place at the present time. The two stochastic indicators though are showing weakening signs that the direction up will continue. But the remaining technical indicators are all pointing to higher prices. Therefore today’s market direction move lower was an opportunity to set up additional trades.
For Thursday the GDP numbers and the Weekly Initial Unemployment Insurance Claims may have some impact on stocks. In general though I am continuing to look for opportunities and place capital at risk in trades unless the 1870 level is broken. At present that does not appear to be the case. For tomorrow the market direction technical indicators all point to higher prices for the indexes, even if only marginally higher.
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