The market direction outlook for Tuesday was for stocks to move sideways but with a bias to the upside. This was the same outlook as Monday. Much of the action today centered around the mid-term elections. With investors waiting for the results, the market drifted primarily lower. In the evening on Tuesday the voting confirmed the Republicans would hold sway in the Senate and this could see stocks move up on Wednesday, at least at the outset.
Let’s take a look at a different chart for this evening to see where stocks might be heading later this week.
SPX 5 Day Market Direction Intraday for Nov 4 2014
If we look at the 5 day chart below you can see that 2000 has become an important barrier. On Friday at the open, 2000 was broken through and stocks rallied to new all-time highs once 2000 gave way. However today in the late morning stocks fell back to retest the 2000 level before moving back above the 2010 level.
This tells investors that should 2000 break, the SPX will quickly fall back to 1970. That means if 2000 breaks I will be buying the SDOW ETF for a short move lower. If however the market now stays above 2000 and continues to climb, even just a little, this will signal that the previous high from Friday will be broken.
SPX 5 day chart to Nov 4 2014
Advance Declines For Nov 4 2014
While stocks may have appeared to be trending sideways for much of Tuesday, volume actually picked up with almost 4 billion shares traded. 68% of all shares traded were moving lower while 30% were moving higher. Of all the stocks traded, there were 178 new highs and just 24 new lows. The volume today though shows that quite a few investors were taking advantage of the sideways movement, to unload some positions. They are obviously bearish.
Market Direction Closings For Nov 4 2014
The S&P closed at 2012.10 down 5.71. The Dow closed at 17,383.84 up 17.60. The NASDAQ closed at 4623.64 down 15.27.
The Russell 2000 IWM ETF closed down 54 cents at $115.82.
Market Direction Technical Indicators At The Close of Nov 4 2014
Let’s review the market direction technical indicators at the close of Nov 4 2014 on the S&P 500 and view the market direction outlook for Nov 5 2014.
Market Direction Technical Analysis for Nov 4 2014
Stock Chart Comments: Stocks basically were sideways again on Tuesday. A new all-time high had been set on Monday but today the SPX fell back to test support at the 2000 level. This is fine as long as the SPX doesn’t return another time to this level. You can also see in the chart that the Upper Bollinger Band continues to widen moving higher and away from the 50 day simple moving average (SMA). The 20 day EMA is turning back up as well. Once it crosses the 100 day exponential moving average (EMA), it will issue a buy signal to confirm higher prices still, for stocks.
Strong Support Levels are at 1870 and 1840. Both levels are strong enough to delay the market falling. 1956 and 1970 are back as support for stocks. 2000 is the highest level of support at present and while not strong, it should have enough strength to hold sellers back for at least a day in the event of an interim pullback. I am not expecting this to happen at this stage of the rally. The market direction still looks like it wants to consolidate and then move higher.
The other two support levels not shown in the chart above 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 now the bottom line.
A break of 1750 would mark a severe correction of more than 13% from the most recent high. This would be the biggest correction since April 2012. A pull-back of that size would definitely stun investors at this point and it is not something I am anticipating at this time.
Momentum: For Momentum I am using the 10 period. Momentum is still positive but again pulled back further today.
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 buy signal on October 22 which was confirmed on the 23rd. MACD is continuing to gain strength.
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 positive and extremely overbought.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change is staying positive and confirming the trend change to up.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. As the Slow Stochastic tries to predict the market direction further out than just one day. The Slow Stochastic is signaling market direction is down and it is extremely overbought.
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 is extremely overbought. Yesterday’s sell signal from the Fast Stochastic was confirmed today.
Market Direction Outlook And Strategy for Nov 5 2014
Technically a lot of the action on Tuesday was about waiting for the mid-term election results this evening. However volume nearing 4 billion shares would also indicate that quite a few investors are selling out of the present rally. Obviously a lot of them want to take their profits and move to the sidelines. This may end up proving to have been the prudent thing to do.
While 4 of the technical indicators are bullish for stocks, the two stochastic indicators are not. They are pointing to continued weakness for stocks.
For Wednesday I am expecting a bounce at the open on the back of the Republicans winning the control of the Senate. Then I am expecting some selling. In the end I think stocks will be lower tomorrow but I am not expecting any kind of free-fall, just slight weakness such as we saw today. The key at present is 2000. As long as it is not retested again on Wednesday, stocks should be able to hold their own here.
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