The outlook for Wednesday was for stocks to bounce. I had expected the bounce to occur on Tuesday but that bounce lasted less than an hour. Instead what we saw on Wednesday was selling in the morning (opposite of Tuesday which saw a rally in the morning) and then a climb throughout the rest of the day.
Analysts indicated that the rally was caused by dovish comments in the morning from Fed officials who spoke of “patience” when raising interest rates as well as stronger than expected new home sales in August.
Market Direction One Month Daily
Personally I think the bounce today was more technical in nature. The past 3 days had seen stocks pullback and enter a Bollinger Bands Squeeze. Yesterday stocks closed at the Lower Bollinger Band and today in the morning stocks fell through the Lower Bollinger Band and almost reached the 50 day simple moving average (SMA). That brought in investors who quickly snapped up many stocks that have been beaten up lately. The most today ended with the SPX sitting at the Middle Bollinger Band.
You can see in the daily chart below that despite all the complaining and worry about a possible severe correction, the market direction has remained primarily sideways. What investors really need to see tomorrow is follow through to the upside following a big up day today, which is something this market has lacked almost all year.
SPX bounce back Sept 24 2014
Advance Declines For Sept 24 2014
Volume was slight higher today at 3.39 billion shares. Today’s volume was 63% positive but only 57% of stocks were advancing. Meanwhile there were 130 new lows and just 18 new highs.
Market Direction Closings For Sept 24 2014
The S&P closed at 1998.30 up 15.53. The Dow closed at 17,210.06 up 154.19. The NASDAQ closed at 4555.22 up 46.53.
Market Direction Technical Indicators At The Close of Sept 24 2014
Let’s review the market direction technical indicators at the close of Sept 24 2014 on the S&P 500 and view the market direction outlook for Sept 25 2014.
Market Direction Technical Analysis for Sep 24 2014
Stock Chart Comments: Today we saw a rebound rally that took the SPX from the Lower Bollinger Band to the Middle Bollinger Band. The SPX is still in the Bollinger Bands Squeeze and the Lower Bollinger Band appears to be breaking away lower while the Upper Bollinger Band still looks like it may trend sideways. The most important aspect now is for the market direction to have strong follow through to the upside on Thursday. This is something that has been lacking for most of 2014.
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. It did this again today.
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 moved up to positive but only slightly. It is more neutral than up.
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 although not quite as negative as on Tuesday.
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 back positive today.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change is now more neutral than either up or 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. 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 is still signaling down but the signal lines are ready to issue a buy signal if the market moves higher on Thursday.
Market Direction Outlook And Strategy for Sept 25 2014
My outlook for Wednesday was for a rebound rally to commence and then stocks to pullback eventually falling to 1975. While today’s rally was certainly exciting to see, there are still no real signals that advise the market is finally out of the present weakness and moving higher. Part of the problem with the continual whipsaws is the inability of the market direction to push to new highs and hold them, building a base to rise higher from.
Instead the SPX continues to pullback and then rally and then pullback and then rally some more. Overall though the market direction is more “go nowhere” than anything else. This helps keep volatility up but also has a lot of investors on edge. I spent a great deal of time on Wednesday with members who have written in for help on setting up portfolio protection.
The first chart in tonight’s outlook shows that the market cannot get momentum back to continue to move higher. While it is nice to see days like today with a big jump after a few days of selling, the overall outlook is still actually sideways.
For Thursday I am expecting some weakness once again in the morning but a higher close of perhaps as much as 50 points on the Dow. After that on Friday we could see the market direction pullback once more as investors head into the weekend.
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