The market direction outlook for Wednesday was for a weak opening with selling in the morning and then a higher close. Instead the morning saw a bounce on the back of an impending ceasefire between Ukraine and Russia although nothing concrete actually occurred. Still investors were hopeful and that pushed the markets to a brand new all-time high of 2009.28. Let’s look at today’s intraday action and then look at the charts technically.
SPX Market Direction Intraday One Minute Chart
The morning saw a jump at the open on the news of a possible ceasefire. Personally I think Putin hopes to carve out a piece of Ukraine for Russia and include the Crimea region in it, but that’s just an opinion. The new high though was immediately sold into which started selling right through to the lunch hour. When the SPX fell below 2000 more buying arrived as the “buy the dip” crowd felt this was an opportunity. The market then rose but only to 2004 before falling back below 2000 to the intraday low of 1998.14. This brought in only hesitant buying which managed to keep the SPX at the 2000 level with a close of 2000.72 a decline of 1.56 for the day.
Market Direction Intraday for Sept 3 2014
Advance Declines For Sept 3 2014
Volume was unchanged on Wednesday with 2.8 billion shares traded. While still far below normal, at least volume is up from 2.2 billion shares. 51% of all volume was negative and 52% of all stocks were declining. Despite this there were another 186 new highs and just 16 new lows.
Market Direction Closings For Sept 3 2014
The S&P closed at 2000.72 down 1.56. The Dow closed at 17,078.28 up 10.72. The NASDAQ closed at 4572.56 down 25.62.
The Russell 2000 IWM ETF fell 74 cents to close at 116.46 giving back yesterday’s gain of 64 cents.
Market Direction Technical Indicators At The Close of Sept 3 2014
Let’s review the market direction technical indicators at the close of Sept 3 2014 on the S&P 500 and view the market direction outlook for Sept 4 2014.
Market Direction Technical Analysis for Sept 3 2014
Stock Chart Comments: Today’s selling was far more muted than yesterday, yet the market was unable to hold any new highs. The S&P managed to cling to the 2000 level. While there is nothing in the chart that concerns me at present the sideways pattern needs to now be watched for any signs of a possible break lower.
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 overbought but pulling back.
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 and moving higher. This could signal a possible break either to the upside or the downside. More likely there could be a break coming to the downside..
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 to neutral for stocks and it too is extremely overbought.
Market Direction Outlook And Strategy for Sept 4 2014
Technically we are looking at almost a carbon copy of yesterday although you can see that many of the indicators are weakening. The Rate Of Change is rising now which could be getting set to indicate a change in trend. That trend will be either up or down but with weakness entering the market and the indicators showing a sideways pattern stuck right at the all-time highs, we may see the market direction shift back to lower to find support.
Investors bought into the first dip over the lunch hour but the deeper dip in the afternoon saw only hesitant buying which could mean a break in the buy the dip mentality may be coming soon.
The Fed Beige Book notes showed that the Fed does not see any clear signals that the economy is quickly heating up and in fact the notes show the opposite. This seemed to puzzle a lot of investors who were looking at the most recent numbers such as yesterday’s ISM report as an indication that the economy is improving and interest rate rises should come shortly.
What we are seeing now is an indication of the market being unable to hold new highs. Instead of clawing higher, the S&P is continually falling back to the 2000 valuation. While certainly nothing to be concerned of at this point, it does bear watching. Should the S&P fall to the Middle Bollinger Band which is a 20 day simple moving average (SMA), then watch for the market to move lower.
For tomorrow the outlook looks set for additional weakness although we could see the market continue to try to regain the upside momentum. We get the interest rate decision by the ECB tomorrow so by the time the market has opened, we should know what the ECB will do. Right now the upside has stalled.
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