The outlook for Thursday was for stocks to be weak in the morning with negative valuations but the close was to be slightly higher as the SPX tried to hold above the 50 day simple moving average (SMA). This didn’t happen as investor sentiment turned negative following last week’s Fed inspired Rally that failed to move the market to new highs. The US dollar continued to climb pressuring global stock markets and commodities once again. Meanwhile Russian President Putin announced the possibilities of Russia seizing foreign assets. Selling started at the beginning of the day and never subdued as investors decided it was time to get out of stocks.
Tonight there is no need for showing the SPX intraday one minute chart. The market closed near the low of the day after tumbling 32.31 points and breaking through key support levels to close at 1,965.99.
Advance Declines For Sept 25 2014
Volume was almost unchanged at 3.3 billion shares with a full 90% of all shares traded, moving to the downside. 190 new lows were made and only 10 new highs. The advance decline ratio is strongly negative.
Market Direction Closings For Sept 25 2014
The S&P closed at 1965.99 down 32.31. The Dow closed at 16,945.80 down 264.26 and once more back below 17000. The NASDAQ closed at 4466.75 down 88.47 marking one of the worst drops this year, part of which was fueled by the decline of Apple Stock.
Market Direction Technical Indicators At The Close of Sept 25 2014
Let’s review the market direction technical indicators at the close of Sept 25 2014 on the S&P 500 and view the market direction outlook for Sept 26 2014.
SPX Market Direction Technical Analysis for Sept 25 2014
Stock Chart Comments: The collapse of the SPX today wiped out key support at 1994 and 1975. This sets the market direction up for a fall to the 100 day EMA.
1994 Support: The 1994 level has been retested numerous times over the past two and a half weeks and finally broke decisively today. It will now act as resistance.
1990 Level: This is light support and broke easily.
1975, 1956 Support: Both are light support and both may be tested in coming days. 1975 is the more significant valuation at this point and easily broke today. I am expecting a rebound attempt to retake 1975 before the market falls to the 100 day EMA..
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 strength of the decline today makes it quite possible the 1870 level will be reached which would mark a further 5% correction from today’s close.
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 had moved slightly positive on Wednesday but turned strongly negative today.
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 falling further into negative readings due to the intense selling pressure.
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 collapsed today reflecting the selling pressure. It is now strongly negative.
Rate of Change: Rate Of Change is set for a 21 period. The rate of change is now negative and appears to be slipping further into negative readings.
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 and it is oversold.
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 and is extremely oversold.
Market Direction Outlook And Strategy for Sept 26 2014
I was expecting as much as 50 points to the downside on the Dow this morning but it reached 50 points within two minutes of the open signaling a strong correction was underway. The mood is somewhat ugly and sentiment is definitely negative. The bearishness of the market is depicted in the market direction technical analysis which is strongly negative.
I would expect a possible rally attempt after closing at the low today, but that may not happen. If it does it will be only temporary and a chance to adjust trades.
The move is set to reach the 100 day EMA possibly by Friday. The GDP number is expected on Friday and should be strong. That could disturb investors more with concerns about possible rising interest rates moving to the forefront. If that happens stocks could fall further. However no matter what the GDP, the strong dollar is pressuring stocks and commodities. That is one of the central reasons for the decline in the markets at the present time.
For Friday I am expect stocks will try to rebound in the morning in an attempt to regain support at 1975. That will fail. Stocks will move lower testing the 100 day EMA. This downturn is strong and could easily reach the 1870 level which is down at the 200 day EMA. Before that though is the 1956 level which is the 100 day EMA. How long that can stall this decline is questionable, but I think Friday could easily see stocks try to break through 1956.
I am now trading to the downside. Rallies higher are being used to set up trades to the downside.
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