The market direction outlook for Friday was for stocks to still push higher but a catalyst to the upside or downside could be created by the employment numbers for Friday. Indeed the employment numbers were actually both as investors at first seemed to feel the jobs numbers were decent but then as the day wore on investors decided they perhaps didn’t like the numbers after all. Meanwhile this past weekend I read a lot of articles discussing why stocks are headings a lot higher from here. I thought the articles seemed in contrast to what is actually happening in the markets. Since January the markets have really gone nowhere. The NASDAQ index is definitely having trouble as are the small cap stocks represented in the IWM ETF, the Russell 2000. The Dow and S&P are sitting right at all-time new territories but investors remain jittery about buying and pushing stocks a lot higher. Revenue is nowhere near where it should be for the price to earning ratio to support a sustained moved higher in stocks and we are now entering the poorest 6 months of the year.
Jobs Numbers
The unemployment numbers were the strongest they have been in two years with 288,000 jobs added in April and both February and March job numbers increased as well. The unemployment rate, which might be somewhat questionable, fell to 6.3% from 6.7% and the non-participation rate improved slightly as more jobs were added and more people came out to look for work. On the one hand growing job numbers are excellent for the growth of the economy. On the other hand, these types of numbers also advise the Fed to continue the tapering program and possibly prepare to raise interest rates.
Market Direction S&P Intraday Chart May 2 2014
Friday’s market action below shows a couple of items. The first was the opening rally following the stronger than expected employment numbers. But then along came the usual early morning trade which usually happens around the 11:00 AM time period. On Friday it was all down hill after the opening rally sent the S&P to within 6 points of the all-time high. The early morning low ended up being the closing low for the day as the market drifted sideways in the afternoon. A number of analysts blamed the continuing Ukrainian crisis for the morning sell-off and lackluster afternoon, but the market also was hit by investor jitters as the strong employment numbers signaled to investors that the Fed will continue tapering and there is a very real possibility that the ultra-low interest rates are not going to last much longer.
Advance Declines For May 2 2014
Friday’s numbers were almost identical to Thursday’s. Advancing issues made up 55% of the volume and declining issues made up 41%. New highs reached 141 and new lows were at 64. Once again the advance decline ration favors the bulls and once again the numbers to the upside are still not very convincing and that has been a problem since January.
Market Direction Closings For May 2 2014
The S&P closed at 1881.14 down 2.54. The Dow closed at 16,512.89 down 45.00. The NASDAQ closed at 4123.90 down 3.55. The Russell 2000 ETF, IWM rose just 9 cents to close at $112.03.
Market Direction Technical Indicators At The Close of May 2 2014
Let’s review the market direction technical indicators at the close of May 2 2014 on the S&P 500 and view the market direction outlook for May 5 2014.
The 1750 level continues to hold the S&P up since the correction ended in early February. All the levels of any support above 1800 have been broken and will need time to heal and create support again. Any downturn in stocks will quickly see these levels above 1800 break. The only level above 1800 that has any support worth mentioning is the 1840 level. There is still no change to this. I am still expecting that at some point in the spring to summer period stocks will correct down to the 1750 level. On Friday though stocks pushed up in the morning to within 6 points of the all-time high.
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 moving sideways and not rising.
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 and on Friday readings are still positive but declining from Thursday’s readings.
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 to provide positive readings and is moving sideways at present.
Rate Of Change is set for a 21 period. The rate of change is negative for a third day indicating a lack of fresh capital flowing into stocks.
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 for the start of the week but just marginally 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 continues to signal that Monday will see stocks higher and it too is overbought.
Market Direction Outlook And Strategy for May 5 2014
Investors remain nervous and with good reason. There are significant headwinds ahead for stocks. If the Fed should even hint at raising interest rates this year, stocks will tumble. At the same time, investors are also not interested in selling out of their positions, convinced that more upside than downside lies ahead.
The technical indicators are supporting that belief as they continue to point to an overbought market, but a market that has still room to the upside.
In my opinion this is the kind of market to be cautious in. There is no reason not to invest but taking smaller positions is a smart move in my opinion and keeping capital back to take advantage of weakness I believe is the smarter strategy at present.
For Monday the market direction looks poised to move sideways but the bias is still up for stocks despite the lower close on Friday among all three indexes. One of the best trades to be considering has to be the early morning shift. Friday once again saw a sell-off in the morning after the market raced higher following the open. This is ideal for the Trading For Pennies Strategy as well as Spy Put Options. I will be watching the market direction again on Monday for more of these opportunities.
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