Market Direction Outlook For Sept 18 2014 – Still About The Fed

My market direction outlook for Wednesday was basically that the Fed would be the main catalyst for the market direction. While this was definitely the case, it turns out the Fed’s notes and Chair Yellen’s comments may be the influencing factor again on Thursday.

While the Fed Chair may not seem to have said anything new, there were definite changes expressed including the ending of Quantitative Easing next month along with continual references to there being a “considerable time” before rates rise. However what the Fed may consider considerable and what investors do may be two different things. Most analysts are now picking June as the start of rising rates. That’s less than a year away. Almost every analyst knows that when rates start to rise, stocks will have trouble. Investors then have to decide whether continuing to look for gains will be a game of “hit and run chicken” or whether the last 5% or 10% gain in stocks is worth risking capital for if most analysts are correct in their assumption that the bull market is running out of steam at present heights. Even those calling for 2100 on the SPX realize this is a 5% gain and if it takes into the winter months to realize it, many investors may question if it is worth risking capital for such gains.

Let’s look at today’s intraday action to start.

SPX Intraday One Minute Chart

Stocks opened flat and stayed fairly steady waiting for the Fed minutes. When they were released an immediate knee-jerk reaction hit the market and it moved first up and then plunged within a couple of minutes down to 1994. This has been the valuation most visited by the SPX during the recent bout of weakness. That brought in buyers who took a different view of the Fed minutes and Yellen’s comments about “considerable time” before rates rise, seemed to be enough to push stocks rapidly higher. Within a little over an hour the SPX was almost ready to break to a new high, a fairly remarkable feat for today. However investors then seemed to turn cautious and selling erupted which pushed stocks back to close just above 2000 at 2001.57.

SPX intraday one minute chart for Sept 17 2014

SPX intraday one minute chart for Sept 17 2014

Advance Declines For Sept 17 2014

Volume was steady today with 3.2 billion shares traded. Only 51% of volume was to the upside despite the big jump in the index. 59 new lows were made today and 76 new highs.

Market Direction Closings For Sept 17 2014

The S&P closed at 2001.57 up 2.59. The Dow closed at 17,156.85 up 24.88. The NASDAQ closed at 4562.19 up 9.43.

The Russell 2000 IWM ETF rose just 30 cents or 0.26% to close at $114.73.

Market Direction Technical Indicators At The Close of Sept 17 2014

Let’s review the market direction technical indicators at the close of Sept 17 2014 on the S&P 500 and view the market direction outlook for Sept 18 2014.

Market Direction Technical Analysis for Sept 17 2014

Market Direction Technical Analysis for Sept 17 2014

Stock Chart Comments: Today’s jump due to the Fed comments and minutes subsided into the close but the spike almost to 2011 was enough to hit the Upper Bollinger Band and the day ended with the S&P back above the Middle Bollinger Band. The places the SPX into the Bollinger Bands Squeeze to the upside so we may see a breakout shortly.

1994 and 1990 Level: 1994 level was revisited for a few minutes today before stocks shot back up.

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 now neutral with a bias to the upside.

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 stay negative on Wednesday but is continuing to rise.

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 higher.

Rate of Change: Rate Of Change is set for a 21 period. The rate of change is still positive and trending sideways to down.

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. Today’s action pushed the Slow Stochastic into signaling market direction up.

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 also now changed back to up.

Market Direction Outlook And Strategy for Sept 18 2014

The Fed comments should influence stocks for Thursday as well. While the market sold back down from almost another new highs, it shows there is still a lot of demand for stocks even at these levels which most feel are overvalued.

Today’s action was all on the back of the Fed comments and minutes. Tomorrow looks to be the same.

Technically the market direction signals are mixed. Two are now pointing to up where they were once pointing down. Three are positive and one is negative but rising.

For Thursday stocks may show some weakness due to still analyzing the Fed minutes and Chair Yellen’s comments, but any weakness should be taken as an opportunity to set up trades as the technical indicators are showing that stocks want to rally from here.

For Thursday then, weakness is still expected but the direction is eventually up.

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