It is nice to know that once in a while I can be right in my outlook and the technical indicators can be wrong. The outlook for Tuesday from the technical indicators was for weakness but still a slightly higher day. My personal outlook was for a sideways day with a bias lower. Much of my personal outlook was based on the closing candlestick on Monday which often signals a change in trend. There were of course other factors including Greece again, a rise in Treasury yields, a rise in the trade deficit to $51 billion, the highest since October 2008 and a decline in the MSCI All-Country World Index by 0.9%. However in general market volume has been poor, breadth is terrible and stocks have continued to be unable to break to the upside. All of this weighed on the markets on Tuesday.
Advance Decline for May 5 2015
Today volume moved up by 700 million shares to 3.8 billion. This used to be an average day for New York. Now it happens only once in a while. 78% of all volume was to the downside and new lows by the end of the day were up from 12 on Monday to 50. New highs came in at 43 a slight drop from Monday’s 54. For the first time in days the number of new lows has jumped which could signal more downside ahead.
Market Direction Closings For May 5 2015
The S&P closed at 2,089.46 down 25.03. The Dow closed at 17,928.20 down 142.20. The NASDAQ closed at 4939.33 down 77.60.
Market Direction Technical Indicators At The Close of May 5 2015
Let’s review the market direction technical indicators at the close of May 5 2015 on the S&P 500 and view the market direction outlook for May 6 2015.
Market Direction Technical Analysis for May 5 2015
Stock Chart Comments:
The S&P spent the entire day trading lower. The close saw the S&P near the lows of the day. There was not much of a bounce back during the day. The S&P is now down to the 50 day simple moving average (SMA) having easily broken through the 2100 again. The 2100 level remains only light support and as we have seen repeatedly, stocks cannot break through and stay above it.
Support and Resistance Levels:
These are the present support and resistance levels.
2100 is very light support. Stocks will have to stay above it to change it back to solid support and convince investors that the market has staying power and will push well beyond 2100. That still does not appear to be the case.
2075 is light support. Below that is 2050 which is also light support. Stronger support is at 2000 which has repeatedly held the market up throughout each pullback in January and February.
Weak support is at 1970. Stronger support is at 1956.
1870 and 1840 are both levels with strong enough support to delay the market falling and should see a sideways action attempt while investors decide whether to sell or buy.
The other two support levels are 1775 and 1750. I have explained that these two are critical support for the present bull market. While 1775 is important it is 1750 that is the bottom line.
A break of 1750 would mark a severe correction from the most recent high. This would be the biggest correction since April 2012. A pull-back of that size would definitely stun investors and bring to question whether the bull market is finished.
Momentum: For Momentum I am using the 10 period. Momentum is negative again after turning positive on Monday.
MACD Histogram: 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 weak sell signal on April 30 which was never confirmed. Today another sell signal was generated.
Ultimate Oscillator: 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 negative and falling.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change has signaled a possible change was highly likely. The signal at the close on Tuesday was for stocks to change trend back to down.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic tries to predict the market direction further out than just one day. The slow stochastic has a weak up signal in place for stocks despite the selling today. As it looks out more than a day it could be predicting a possible bounce by Thursday or Friday. We will know more at the close on Wednesday.
Fast Stochastic: 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 down for stocks and has a strong sell signal in place which has to be confirmed.
Market Direction Outlook for May 6 2015
The pullback today has set the market direction up for a continued pullback. The past two trading days look like they were basically a trap for the bulls although the close today was still above the open from Friday.
There are strong signals from most of the technical indicators that the trend is changing back to down. I would expect a rally attempt in the morning on Wednesday and then a lower close.
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