The outlook for Friday was for the Fed rally to erode and a slightly negative close probably develop. The rally back was too high and we should see stock values erode somewhat further on Monday. I have been away at a family function for the end of last week and returned late Sunday night. Here is the technical outlook and I will be updating on Monday.
Market Direction Technical Indicators At The Close of Sept 19 2014
Let’s review the market direction technical indicators at the close of Sept 19 2014 on the S&P 500 and view the market direction outlook for Sept 22 2014.
Market Direction Technical Analysis for Sept 19 2014
Stock Chart Comments: Friday’s move confirmed that the Upper Bollinger Band is not going to be broken through and the SPX is poised to pullback as it enters the Bollinger Bands Squeeze.
1994 and 1990 Level: These two are now very light support.
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 but the Bollinger Bands Squeeze that is developing could be strong enough to break through the 1870 level as the week unfolds..
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 positive but just barely and turned almost negative by the close on Friday..
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 Friday but rose for the 4th day. Still though it is negative and that is what counts at this stage of the rally.
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 overbought.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change is still positive and trending sideways with a slight bias lower, which indicates no new capital is flowing into stocks.
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 that the market direction is 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 signaling that the market direction is up and it is overbought. However on Friday you can see that the indicators are ready to turn negative by the close.
Market Direction Outlook And Strategy for Sept 22 2014
The Bollinger Bands Squeeze was supporting a move to the upside for stocks however on Friday an attempt to break through to the upside failed. Stocks are set to fall lower on Monday. I will be updated the market direction outlook during the day on Monday.
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