The outlook for Monday was for stocks to fall back. While there are a number of reasons for this which includes the continuing rise of the US dollar which is collapsing prices for commodities as well as a slowdown in the Chinese economy, the majority of the pullback has been caused by investors who are technically trading against the market movement itself. The market has continued to experience trouble breaking free and climbing much higher. Instead it has been trending more sideways than up and then when the SPX failed to break free of the Upper Bollinger Band investors decided to sell positions and raise cash.
Market Direction Intraday One Minute Chart
Today’s one minute chart below shows that when the breakout of the SPX through the Upper Bollinger Band on Friday failed, markets today continued the sentiment that had been established on Friday, namely selling lower. At the outset the market sold down and you can see how easily it broke through the 2000 level and then quickly fell back to 1994 which has now become support. For the rest of the day the market trended sideways clinging to support at 1994. 1994 has become strong support for the present rally.
SPX intraday for Sept 22 2014
Advance Declines For Sept 22 2014
Volume moved higher today to 3.35 billion shares up 150 million shares since Friday. We need to keep an eye on volume to make sure it does not continue to rise if stocks continue to fall. That would be bearish for stocks at this time. Meanwhile 84% of volume was trading down and 80% of all stocks were declining. There were only 22 new highs but 151 new lows which supports further downside action at this time.
Market Direction Closings For Sept 22 2014
The S&P closed at 1994.29 down 16.11. The Dow closed at 17,172.68 down 107.06. The NASDAQ closed at 4527.69 down 52.10.
(The Russell 2000 commentary has been moved to the investing strategy notes before the markets open)
Market Direction Technical Indicators At The Close of Sept 22 2014
Let’s review the market direction technical indicators at the close of Sept 22 2014 on the S&P 500 and view the market direction outlook for Sept 23 2014.
Market Direction Technical Analysis for Sep 22 2014
Stock Chart Comments: Friday’s action signaled that the Upper Bollinger Band would not be broken through which set up the downturn for today. Today’s downturn while pronounced was no where near as large as many previous downturns but it did place the SPX below the Middle Bollinger Band. While this is negative on its own, the fact that the downturn occurred off the Upper Bollinger Band as the SPX was entering a Bollinger Bands Squeeze is more negative for the outlook than today’s drop on its own. Tomorrow we will want to watch and see if stocks keep sliding to confirm the Bollinger Bands Squeeze will push stocks lower.
1994 Support: The 1994 level has been retested numerous times over the past two and a half weeks and is now support for the market and any move higher should bounce off the 1994 level.
990 Level: This is 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 has continued the downtrend from Friday and turned negative.
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 had been rising for the past 4 trading days. Today it fell back staying negative and continuing to point to further selling to come.
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 but took a large dip today.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change is still positive but also took a large dip today and is heading toward negative indicating that money is flowing out of stocks today and not coming back in. This indicates that investors are raising cash.
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 down. While not overly negative the Slow Stochastic is still indicating that lower prices are ahead for later this week.
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 turned negative on Monday and issued a sell signal during the day. The wide gap between readings indicates just how strong the selling was today and will most likely continue either Tuesday or Wednesday.
Market Direction Outlook And Strategy for Sept 23 2014
The outlook remains negative for stocks on Monday and is signaling that investors are selling positions and raising cash. The last downturn ended on August 7 but the rally back while profitable has not set up a similar pattern of higher highs and higher lows indicative of the previous rallies throughout the past 12 months. Instead the rally off the August 7 bottom set up a sideways pattern that refused to continue to climb and follow previous patterns. This is negative for the outlook at this time and indicates that if a bounce ensues tomorrow, it will fail and stocks will pullback further.
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