The market direction outlook for Tuesday to start off September was for stocks to push higher even if only slightly. The ISM reading however was stronger than analysts had estimated. US Manufacturers reported one of the strongest Augusts in almost a decade with orders arriving at their highest levels in 10 years and a jump in the ISM index to 59% for August. Production came in at the highest level in 4 years.
Readings this high almost always translate into tightening labor markets after a few months. That could be the signal the Federal Reserve needs to start raising interest rates. This caught the market by surprise and stocks tumbled in the morning on the news.
SPX Market Direction Intraday One Minute Chart
The morning saw a bit of selling at the open but in general stocks were moving sideways. The ISM number though caught investors by surprise and they began to sell, dropping the SPX to 2001 and then through it all the way down to 1994.85 by just after the lunch hour. This downside action caught a lot of analysts by surprise and many questioned if the selling would stop at 1994.85. It did and the rest of the afternoon investors were busy buying the morning dip and pushed stocks back up over the 2000 level and 2001 level to close at 2002.28.
SPX intraday for Sept 2 2014
Advance Declines For Sept 2 2014
Volume picked up on Tuesday with 2.8 billion shares traded. This is till far below a normal 4 or 5 billion share day. 53% of volume was traded to the downside and 51% of all issues were falling. However 215 new highs were made, better than Friday and 13 new lows. Overall this is not the sign of a market about to correct.
Market Direction Closings For Sept 2 2014
The S&P closed at 2002.28 down 1.09. The Dow closed at 17,067.56 down 30.89. The NASDAQ closed at 4598.19 up 17.92.
The Russell 2000 IWM ETF rose 64 cents for another day of better than half a percent gains to close at $117.20
Market Direction Technical Indicators At The Close of Sept 2 2014
Let’s review the market direction technical indicators at the close of Sept 2 2014 on the S&P 500 and view the market direction outlook for Sept 3 2014.
Market Direction Technical Analysis for Sept 2 2014
Stock Chart Comments: Today’s selling was fairly mute actually, despite the Dow at one point being down better than 90 points. The S&P managed to close down just 1.09 point and the NASDAQ finished positive on the day. There is nothing in the chart that concerns me at present.
The most important aspect of the present market is still the 1975 level.
1975, 1956 Support: Both are light support and both may be tested in coming days but for the time being stocks look set to continue to move higher. 1975 is the more significant valuation at this point.
Strong Support Levels are at 1870 and 1840 (no longer shown). At present I am not expecting any break of either of these levels.
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 12.7% 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 positive but weakening.
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 buy signal on Friday August 15. MACD remains positive but the readings are continuing to pullback still today.
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 up and overbought again.
Rate of Change: Rate Of Change is set for a 21 period. Today the Rate Of Change pulled back a bit but the reading is strongly positive.
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 market direction is neutral. It remains extremely overbought.
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 signaling up for stocks and it too is extremely overbought.
Market Direction Outlook And Strategy for Sept 3 2014
The ISM report is what caught investors by surprise and the overbought nature of the market at present helped to push stocks lower. The buy the dip mentality though is alive and well and today once again investors stepped in and picked up stocks on the selling.
Eventually of course, the buy the dip mentality will be the wrong move but until that happens, it remains one of the better strategies.
The Market Direction Technical Analysis is fairly positive. Just about every indicator is showing strength although a couple have turned slightly lower. Still though the overall direction for stocks is up. For Wednesday keep an eye on the NASDAQ. Today it was the index that lead the other two indexes back up out of the selling.
I am expecting some weakness in the morning but then a higher close even if only slightly, for Wednesday.
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