The market direction outlook for Monday was for stocks to continue to advance. While I had indicated that the Ukrainian crisis could be a catalyst either way, I did not expect the large early morning sell-off. It is important to understand momentum when investing and watching the overall market direction. Momentum since January while not strong, continues to try to push higher. The two corrections since January have basically been opportunities to buy into stocks for a push back higher. This morning was another good indication of momentum. The market sold off at the open but then recovered to close higher. The worry by investors over the Ukrainian crisis, the Fed tapering, the prospect of rising interest rates, continues to pressure stocks, but investors in general are still pushing to the upside.
Market Direction S&P Intraday Chart May 5 2014
Monday’s market direction action below in the one minute chart shows why understanding momentum is important. The morning saw a plunge in valuations as all three indexes fell at the open, but within minutes a bottom was in place. I did a lot of trades today and have not been able to update all my trades. Two of the better trades were in the market direction portfolio and in the Trading For Pennies Strategy. The rally that followed the morning low was excellent and trades. By 11:00 AM the market was flat but held steady. This drew in more investors over the lunch hour and the market direction pushed higher into the close. Rather than selling off into the close, the market direction closed near the highs for the day.
Advance Declines For May 5 2014
Advancing issues made up 47% of the volume and declining issues made up 49% as the market direction down and then up split stocks into almost equal camps. New highs were just 95 and new lows 76. Once again the new highs are not very robust but investors keep struggling to push valuations overall higher. Anyone who is bearish on stocks at this moment needs a larger catalyst to break investor sentiment.
Market Direction Closings For May 5 2014
The S&P closed at 1884.66 up 3.52. The Dow closed at 16,530.55 up 17.66. The NASDAQ closed at 4138.06 up 14.16. The Russell 2000 ETF, IWM closed down 14 cents to $111.89.
Market Direction Technical Indicators At The Close of May 5 2014
Let’s review the market direction technical indicators at the close of May 5 2014 on the S&P 500 and view the market direction outlook for May 6 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.
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 it too is moving sideways.
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 back into overbought readings.
Rate Of Change is set for a 21 period. The rate of change is back positive despite today’s sell-off indicating that investors were buying the large morning plunge.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling market direction is down after the selling this morning.
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 has diverged from the Slow Stochastic and is indicating that the market direction is higher.
Market Direction Outlook And Strategy for May 6 2014
There is no change in any of my strategies. The opening plunge was in sharp contrast to the market direction outlook and as such I sold puts, did some stock purchasing for a couple of short-term trades. The trend was up for the market direction so it was obvious that the sharp sell-off at the open was not caused by stocks but by the Ukrainian crisis. As in all such past plunges, the plunge in valuations at the open was made worse by the number of investors who jumped in and sold positions as well. The selling was heavy right at the outset but within minutes it had evaporated and stocks began to climb back.
The technical indicators by the close are still bullish by five to 1. Only the Slow Stochastic is signaling that the market direction is lower.
For Tuesday May 6, I am expecting a bit of weakness again in the morning, setting up for the early morning trade which has become a major part of this market. After that I am expecting higher valuations in the afternoon and a higher close. The general outlook for market direction then is a sideways pattern still with the bias for the direction remaining up.
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