Market Direction Outlook For Sept 16 2014 – Weakness Continues Ahead of the Fed

In my market direction outlook for Monday I explained that as we head into the Fed minutes on Wednesday, weakness will dominate but stocks will attempt rallies.

In general today stocks did trend primarily sideways with three rally attempts which managed to keep the SPX moving sideways into the close. It was the NASDAQ that drew a lot of the attention as it moved lower by 1% throughout the day and failed to recover into the close. A lot of analysts turned bearish on tech stocks citing today’s pullback as the start of something a lot bigger. As I stay primarily with large cap stocks like Intel and Microsoft I am not worried about the pullback. Microsoft in my opinion is ahead of itself while Intel stock I think is fully valued. On the other hand Apple Stock still has room to move higher. I think a lot of the attention was focused on the upcoming Alibaba IPO and I imagine lots of investors are busy selling some stocks to raise cash for the IPO which at present seems to be priced around $68.00 a share.

SPX Market Direction One Minute Intraday Chart

The one minute chart so that at the outset investors sold right at the open pushing the SPX through 1980 to a low of 1,978.48 just three points away from my eventual goal of 1975 which is the 50 day simple moving average (SMA). Stocks though tried two morning rallies both of which failed. Stocks by the lunch hour were back down to the 1979 valuation. From there a rally started after lunch which pushed the SPX back above 1985, all the way to 1987 before once again investors sold stocks into the close. The close was back below 1985 but not by much. Overall it was a day of weakness with a number of rally attempts. Basically, Monday ended up following what the technical indicators had predicted from Friday’s action.

SPX intraday for Sept 15 2014

SPX intraday for Sept 15 2014

Advance Declines For Sept 15 2014

Volume dropped back again today as just 2.8 billion shares were traded. 60% of the volume was down and new highs today were just 2w4 while new lows came in at 70.

The weakness we are seeing in the market is now bleeding over into increasing new lows. While not overly concerning at this point, it is important to keep an eye on the number of new lows.

Market Direction Closings For Sept 15 2014

The S&P closed at 1984.13 down just 1.41. The Dow closed at 17,031.14 up 43.63 and back above 17000. The NASDAQ closed at 4518.90 down 48.70 for a loss over 1%.

The Russell 2000 IWM ETF moved down 1.09% today after falling 1.06% on Friday. The IWM ETF closed at 114.11 closing just above the 50 day simple moving average (SMA).

Market Direction Technical Indicators At The Close of Sept 15 2014

Let’s review the market direction technical indicators at the close of Sept 15 2014 on the S&P 500 and view the market direction outlook for Sept 16 2014.

Market Direction Technical Analysis for Sept 15 2015

Market Direction Technical Analysis for Sept 15 2015

Stock Chart Comments: Stocks moved sideways for the most part today although in the morning they did break easily below 1980. This might be signaling a move down to 1975 is not far away.  This places the SPX below the Middle Bollinger Band once again and you can see the Bollinger Bands Squeeze continuing to form. While my original early guess was that the Bollinger Bands Squeeze could see the SPX push back and break to challenge the most recent all-time high, there are more indications now that the squeeze could pressure stocks to fall lower.

1994 and 1990 Level: 1994 and 1990 levels were easily broken through on Friday but not recovered.

1975, 1956 Support: Both are light support and both may be tested in coming days. 1975 is the more significant valuation at this point.

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.

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 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 is negative but still close to turning positive even though it moved slightly lower 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 confirmed sell signal on Sept 10.  MACD continued to turn more negative today.

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 trending sideways.

Rate of Change: Rate Of Change is set for a 21 period. The rate of change is still positive and trending 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 signaling market direction is lower. It is no longer 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 still signaling down and it is no longer overbought.

Market Direction Outlook And Strategy for Sept 16 2014

Technically the market direction is continuing to weaken. But the Ultimate Oscillator and Rate Of Change are still clinging to positive readings. Part of the reason for this is the Fed minutes which are released Wednesday. Investors are sitting with a wait and see attitude for stocks and interest rates.

For Tuesday there is no indication other than the drop of the NASDAQ that there is a significant drop coming. Instead stocks look set to continue to drift slowly lower. My outlook is unchanged from the weekend. I am continuing to trade, looking for opportunities but staying further out of the money when selling put options.

I have a large amount of cash still on the sidelines although it was higher back in March than it is at present.

For Tuesday I am expecting a repeat performance of today with stocks staying mildly weak and the index being slightly lower at the close.

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