Market Direction Outlook For May 9 2014 – Down

The market direction outlook for Thursday was for stocks to move eventually end up sideways. Basically that’s what investors got. The market was rallying but many investors noted that the recovery in the NASDAQ was feeble at best. Risk appetite for many spec stocks has almost dried up and the NASDAQ is reflecting that. When investors noted that the NASDAQ was not staging much of a comeback they began to sell. Then Janet Yellen, who yesterday juiced stocks with her comments, today dampened them with her concerns about the continuing high non-participation rate among the unemployed and the shrinking of the middle class. Most telling though seemed to be her comments on the concerns with the housing market and high student debt. This caught the attention of a lot of investors and they sold the markets off. The Dow turned negative but then turned back up as the only index to close positive. The losses though were small. It was the decline from such a strong rally that hurt the indexes today. So what Yellen did yesterday she undid today. Fun market isn’t it. Just to keep things in perspective though, the S&P is still only about 1% below its April 4 high and the Dow today was within 9 points of its all-time high. So while the downturn was disappointing, stocks are actually hanging on at present.

Weekly Initial Unemployment Insurance Claims

The only other event to mention today is the Weekly Initial Unemployment Insurance Claims which dropped lower coming in at 319,000. Once again falling away from that critical 350,000 level should help stocks.

April Budget Surplus

The only other item to mention this evening was the April budget surplus which came in at a surprising $114 billion making it the largest budget surplus for April since 2008. The Congressional Budget Office estimated that the deficit is down $187 billion from the same period in 2013.

Market Direction S&P Intraday Chart May 8 2014

A second wild day started out full of promise of higher prices. A quick pullback at the start ended up being the morning low and by the close of the day, the day’s close as well. For much of the morning the market rallied. The NASDAQ also tried to rally getting up to 4109.20 before selling back down. When the NASDAQ began to turn down investors slowly started to sell. Yellen’s comments about the unevenness of the recovery and the potential housing problem got investors selling harder. Fears about anything to do with housing troubles concerns investors and Fed comments are enough to bring in sellers. The afternoon saw the entire rally wiped out. A short bit of buying at the end of the day saw the S&P close off the lows but at the morning low. Basically a sideways end to the day.

market direction May 8 2014

Advance Declines For May 8 2014

Advancing issues were 41% today and decliners 56%. New highs though rose again with 169 new highs and 93 new lows, a drop from yesterday’s 125 new lows.

Market Direction Closings For May 8 2014

The S&P closed at 1875.63 down 2.58. The Dow closed at 16,550.97 up 32.43. The NASDAQ closed at 4051.50 down 16.18 for the day.

The Russell 2000 ETF, IWM,  fell through $110.00 closing at $109.03 down 1.11 for a decline of 1% as small caps continue to be hammered.

Market Direction Technical Indicators At The Close of May 8 2014

Let’s review the market direction technical indicators at the close of May 8 2014 on the S&P 500 and view the market direction outlook for May 9 2014.

market direction technical analysis May 8 2014The 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. Today was another wild ride on the markets with the loss of what was a strong rally higher. This tends to be a negative signal for stocks.

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 now back to negative but with the reading it is closer to neutral than negative just as yesterday’s reading was more neutral than positive. Stocks are trying to decide which direction to move next and the momentum indicator is showing this.

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 the readings continued to fall and now are so close to zero as to almost turn to a sell signal.

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 still positive but tumbled back to 53.61.

Rate Of Change is set for a 21 period. The rate of change is still positive but lower and almost ready to turn negative. The positive breadth we saw from the rate of change is all but gone.

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 for Friday and into the start of next week.

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 had turned up for Thursday but it closed the day with a sell signal for Friday. It is still somewhat overbought.

Market Direction Outlook And Strategy for May 9 2014

The direction today was for stocks to turn sideways. In the end that is exactly what happened. But the inability of the markets to hold their early gains was disappointing and is often a negative for stocks. The S&P and Dow are sitting near their highs but the NASDAQ and Small Caps are being hammered daily. This cannot continue without one side or the other changing direction. The S&P and the Dow can continue to advance without the NASDAQ or small caps, but not for very long. The S&P and Dow have basically recovered from the March and April pull backs but they are stuck and remain unable to push higher.

Almost all 6 indicators are either negative or pointing down. A number are on the verge of sell signals. This cannot continue in my opinion and the market will pull back. The technical indicators are pointing to further weakness for Friday. As it is ahead of the weekend, the indicators are pointing to the market direction as being lower for the close. With the Weekly Initial Unemployment Insurance Claims moving back to 319,000 I would not expect a plunge, but weakness definitely seems to be still with the markets.

The rally back from March and April were nice to see, but there has been no follow through. The market direction is stuck sideways and as we enter into the spring and summer months I still believe the direction in the end will be lower. Today the VIX Index fell to just below $13 and I pick up some more July $14 call options for $2.20. The only other trade I did was a Spy Put Options trade.

For tomorrow I will be back trading to the downside.

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