The outlook for Tuesday was for stocks to be stronger in the morning, weaker in the afternoon but close positive. I was expecting a sideways day as investors awaited the unofficial kick off for the next quarterly earnings on Wednesday. Instead investors voted with their selling and got out of stocks. I was certainly wrong. Investors were nervous about everything from signs of slowing global economic growth to Ebola and with the market failing to have any follow through from Friday’s move higher on Monday, investors sold out.
Without follow-through, the rally from Friday is now considered a “bounce” and nothing more. The market now appears intent on reach 1930 which is the next level of support and near the lows of early August before the market staged the previous rally.
SPX Market Direction Intraday Chart
The morning saw a short but sharp drop which was immediately bought and the SPX rallied back pushing through resistance at 1956. Sellers then emerged and the rest of the day saw the market direction drift lower until mid-afternoon. By 2:00 PM investors seemed to have had enough and they began selling in larger volumes which eventually pushed the market to close at 1935.10, just 5 points away from the next support level of 1930.
SPX Oct 7 2014 intraday one minute chart
Advance Declines For Oct 7 2014
Volume picked up slightly on Tuesday reaching 3.7 billion shares an increase of 400 million shares. 82% of all volume was down and the market made 179 new lows and just 22 new highs. The bearish sentiment is continuing to hold sway in the market.
Market Direction Closings For Oct 7 2014
The S&P closed at 1935.10 down 29.72. The Dow closed at 16,719.39 down 272.52. The NASDAQ closed at 4385.20 down 69.60.
Market Direction Technical Indicators At The Close of Oct 7 2014
Let’s review the market direction technical indicators at the close of Oct 7 2014 on the S&P 500 and view the market direction outlook for Oct 8 2014.
Market Direction Technical Analysis for Oct 07 2014
Stock Chart Comments: Tuesday saw little to encourage the bulls. The plunge late in the day only added to the nervousness of investors as many wanted to get out. The SPX is now down below the 100 day EMA and shows every sign of pushing lower to probably test 1930.
1994 Support: The 1994 level is now resistance.
1975, 1956 Support: Both are light resistance.
1930 Support: Light support is found at 1930.
Strong Support Levels are at 1870 and 1840 (no longer shown). At present the strength of the downturn could easily see the 1870 level challenged later this week or into next.
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 stayed negative today.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change was negative and lower.
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 at the close today although the signal lines look ready to issue a sell 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 down at the close today and is signaling lower prices lie ahead for investors.
Market Direction Outlook And Strategy for Oct 8 2014
Technically yesterday the market direction up looked somewhat stronger but today that has all changed with the intense selling. The market is definitely going to move lower. The rally on Friday has failed and the direction is lower.
My trading has moved to the downside as can be seen in my Spy Put Trades, rolling down of covered calls, rolling down of naked put positions and closing of some that are profitable despite the selling.
For Wednesday stocks look set to try a short bounce attempt at the open and then head down to 1930 which is the next support level. This is a weak level and it will not withstand much selling. If stocks bounce off 1930, it will be short-lived. The market is heading lower and I have adjusted my trades to take advantage of that move lower.
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