The outlook for Tuesday was for stocks to attempt a rally and then continue to fall back and indeed today stocks obliged and followed the market direction outlook. While many reasons as being tossed about, technically the biggest reason for the continued decline is the market itself is overvalued and was overbought. When it failed to push through to new highs late last week, the rally from the early August low ended and stocks are now in a decline phase. Let’s look at today’s market direction action.
Market Direction Intraday One Minute Chart
Today’s one minute chart below shows a very nice rebound rally to start the day off. The rally managed to capture the 1994 level. The first rally saw a bit of selling around 10:00 AM which dropped the SPX slightly lower and then stocks pushed back up to above 1994 once again. When this failed to ignite further buying, sellers stepped in and they sold stocks throughout the entire day. This has created a pattern of lower highs and lower lows as you can see below. By late afternoon the SPX was down to the 1984 level. An erratic rally occurred toward the close of the day and investors seemed to pick from a variety of stocks to be buying and this pushed the S&P higher. However by 3:45 that rally ended and left another lower high. Investors than sold the market into the last 15 minutes with heavy volume pushing below 1984 and closing at the low for the day..
SPX Intraday market direction for Sep 23 2014
Advance Declines For Sept 23 2014
Volume was steady today at 3.3 billion shares matching yesterday’s volume. Yesterday 84% of all shares traded to the downside while today 70% of all trading was to the downside. Meanwhile yesterday there were 22 new highs and today just 11 and yesterday there were 151 new lows while today there were 134. The advance decline ratio still supports more downside action ahead for stocks.
Market Direction Closings For Sept 23 2014
The S&P closed at 1982.77 down 11.52. The Dow closed at 17,055.87 down 116.81. The NASDAQ closed at 4508.69 down 19.00.
(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 23 2014
Let’s review the market direction technical indicators at the close of Sept 23 2014 on the S&P 500 and view the market direction outlook for Sept 24 2014.
Market Direction Technical Analysis for Sep 23 2014
Stock Chart Comments: Today we saw a rebound rally that lasted just over half an hour before sellers took charge once again. As the market direction fell it obviously triggered stop-losses and the selling picked up, especially during the last 15 minutes of trading. You can see that the Bollinger Bands are starting to widen as the Bollinger Bands Squeeze unfolds. Today marked the 3rd day of selling and the SPX ended the day right at the Lower Bollinger Band but still above the 50 day simple moving average (SMA).
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. The market direction up must recapture this level to regain momentum to the upside.
1990 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 Monday and continued negative but not overly 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 today and is falling further.
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 negative today after taking a large dip yesterday.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change is now negative and falling indicating that investors are raising cash through unloading their positions..
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.
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 continued lower on Tuesday and is still signaling down for stocks. It is quickly becoming oversold..
Market Direction Outlook And Strategy for Sept 24 2014
Technically the SPX is definitely under pressure. There are NO positive signals for the market and even those that are only slightly negative are continuing to slide toward stronger negative readings. Despite this though the SPX looks like it wants to rebound for most of a day. When that is over, stocks will fall lower and most likely try to reach the 1975 level and establish some kind of pivotal point to try to rebuild momentum to the upside.
The outlook for stocks for Wednesday though looks to still be negative. I am now looking at a number of trades due to stocks have pulled back. Doing trades at this point requires an investor to be sure of their stock selection and the option strike being selected and the strategy being used.
I am looking for more opportunities this evening but I also know that having patience in this kind of market is always a plus. By waiting for another day I may get some trades at better prices than today.
The outlook for Wednesday then is for stocks to attempt a rebound once mroe. Following that, I think stocks will move to 1975 which is the 50 day simple moving average (SMA). Once stocks are down to 1975, they should take a breather and move sideways even for just a day.
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