The outlook for Monday was for stocks to be weak, especially in the morning and then for investors to try to squeeze out a positive close. I had expected that it would be close but still slightly positive. Instead news that Germany factory orders were down again, this time to levels not seen since January 2009, worried investors. With quarterly earnings front and center as well as two Fed Presidents speaking on Tuesday, investors are in a holding pattern waiting for Alcoa to release their earnings on Wednesday. Tomorrow we also get the YUM Stock earnings which a lot of investors are nervous about.
Federal Reserve Bank of Minneapolis President Narayana Kocherlakota speaks on “Clarifying the Objectives of Monetary Policy” and Federal Reserve Bank of Kansas City President Esther George is also speaking elsewhere on the U.S. economy before an economic forum hosted by the Federal Reserve Bank of Kansas City. Finally former Federal Reserve chair Ben Bernanke is the key speaker at World Business Forum in New York.
SPX Market Direction Intraday Chart
The morning saw the best highs of the day with the market opening up and breaking quickly through the 50 day SMA. That though brought out traders who quickly sold positions they had obviously picked up Thursday and Friday. A second rally failed as again volume picked up before the SPX even made it back to 1975. From there the market sold off down to 1960 before recovering in the afternoon. The close was just 3 points lower. All in all, a primarily sideways days with lots of action and with the VIX Index jumping to close at $15.46 up 6.25% but in general not really going anywhere.
SPX Intraday Oct 6 2014
Advance Declines For Oct 6 2014
Volume continued to fall on Monday. Down 3.3 billion shares you can tell that a lot of investors are sitting on their hands ahead of Wednesday. Up volume was 51% and down 45%. New lows were down to 77 which is quite the plunge from the triple digits of last week. The new highs came in at 34 which is almost unchanged from Friday’s 30.
Friday’s market volume was primarily bullish and today was strictly sideways. This continues to point to higher prices ahead as long as Alcoa does not disappoint on Wednesday.
Market Direction Closings For Oct 6 2014
The S&P closed at 1964.82 down 3.08. The Dow closed at 16,991.91 down 17.78. The NASDAQ closed at 4454.80 down 20.82.
Market Direction Technical Indicators At The Close of Oct 6 2014
Let’s review the market direction technical indicators at the close of Oct 6 2014 on the S&P 500 and view the market direction outlook for Oct 7 2014.
Market Direction Technical Analysis for Oct 6 2014
Stock Chart Comments: Monday’s action was almost all sideways. But the SPX did break through the 50 day SMA at the outset only to be met by sellers. Still though the market hung on to close down just 3 points which is bullish for now.
1994 Support: The 1994 level is now resistance.
1975, 1956 Support: Both are light resistance. 1956 was easily retaken last Friday.
1930 Support: Light support is found at 1930.
Strong Support Levels are at 1870 and 1840 (no longer shown). At present I am not expecting any break of either of these levels in the near term.
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 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 as there are no signs of any impending correction of that magnitude.
Momentum: For Momentum I am using the 10 period. Momentum has been the best indicator, replacing MACD as the most accurate indicator. Momentum remained negative 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 confirmed sell signal on Sept 10. MACD is still negative.
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 turned negative today.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change was negative and sideways.
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 giving an up signal.
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 up at the close today.
Market Direction Outlook And Strategy for Oct 7 2014
Technically the market is starting to look stronger. While the Ultimate Oscillator turned negative, both the Slow Stochastic and Fast Stochastic are giving stronger up signals. The rate of change while still negative also looks ready to push back which would signal further advances for stocks.
Monday was basically a sideways day with absolutely no follow through. All year the market rallies have failed to have follow through. You can tell that investors are waiting for the earnings on Wednesday from Alcoa. As well tomorrow YUM Stock will release its highly anticipated earnings which could either weaken the day tomorrow or add strength depending on how the earnings look. Whatever the case YUM should be interesting tomorrow.
As well, we have two Fed Presidents speaking tomorrow and one former Fed Chair and you can also tell that many investors wanted to keep cash out of the market ahead of any possible derogatory comments that could move stocks.
For Tuesday my outlook is unchanged from Monday. I have about 60% of my capital tied to stock positions and I am still looking for opportunities here and there. As I find them I will post them. I was a little disappointed in Apple Stock today. It basically closed unchanged from Friday which is not common for Apple. Again, you can see that a lot of investors are sitting on their cash and waiting for Wednesday.
For Tuesday then, I think the market direction will pick up in the morning and then trend sideways throughout much of the day. I think the weakness tomorrow may be more around the noon hour and then mid-afternoon. Morning tomorrow though I am expecting a bit of strength. The close I believe will be positive after reviewing the technical indicators after the market closed this evening.
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