The market direction outlook for Monday was for stocks to experience some weakness but to push back and try to make another new high. Instead stocks continue to struggle at the 2000 level with every dip buying being followed by profit taking. Monday’s attention was on Britain and Scotland where a poll showed the separatist vote may win out which naturally will breed a degree of uncertainty for the economy, especially at a time when Britain’s economy is starting to do well. Added to this mix was China’s news that the trade deficit was wider than expected showing that China is still witnessing a slow down in their economy. Other factors also came into play including a drop below $100 a barrel for oil which sent the energy sector lower. Let’s take a look at today’s actions.
SPX Market Direction Intraday 1 Minute Chart
The market opened with a slight dip and then a move back to the morning high of around 2007. From there two dips occurred in the morning but after the lunch hour the market took a bit of a dive. It reached 1995.60 before the “buy the dip” crowd returned yet again and managed to push the S&P back above 2000 to close at 2001.54. The low though was surprisingly strong and was within a point and a half of reaching 1994. I believe if 1994 breaks, the market will pullback and quickly retest 1990. While it was good to see the SPX hold the lows once again, this cannot keep happening. Eventually if the market cannot hold above 2000 and then move convincingly higher, it will pull back.
SPX Market Direction intraday for Sept 8 2014
Advance Declines For Sept 8 2014
Total volume continued to decline on Monday with 2.79 billion shares traded. Down volume made up 65% of all shares traded and 60% of all issues were declining. However there were 121 new highs and just 23 new lows. The number of new highs was up from Friday’s 95. Volume while poor continues to suggest that the underlying strength remains to the upside despite the market wobbling around the 2000 level.
Market Direction Closings For Sept 8 2014
The S&P closed at 2001.54 down 6.17 although by mid-afternoon yesterday’s gains were given back. The Dow closed at 17,111.42 down 25.94. The NASDAQ closed at 4592.29 up 9.39 bucking the trend of the other indexes..
The Russell 2000 IWM ETF rose 18 cents to close at 116.56. The Russell 2000 still has not recovered the March highs.
Market Direction Technical Indicators At The Close of Sept 8 2014
Let’s review the market direction technical indicators at the close of Sept 8 2014 on the S&P 500 and view the market direction outlook for Sept 9 2014.
Market Direction Technical Analysis for Sept 8 2014
Stock Chart Comments: I have added in the 1994 level to the SPX chart. You can see that this level is what is struggling to hold the market up. If 1994 breaks there could be another rally attempt but then I would expect a pullback to 1990 and then if that breaks a quick fall down to 1975.
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.
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 is positive and moving sideways.
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 now down to just 1.44.
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 no longer overbought and is trending sideways.
Rate of Change: Rate Of Change is set for a 21 period. Today the rate of change turned sharply down but is still quite 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 lower. 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 now signaling down and it too is extremely overbought.
Market Direction Outlook And Strategy for Sept 9 2014
Technically there are a lot of issues including a very overbought condition. The market continues to struggle with the overbought condition each time it tries to hold above 2000. You can see in the SPX chart above that the market direction has shifted sideways for the past 10 trading days. The Bollinger Bands are starting to move closer together and eventually if the market direction does not change they will form a Bollinger Bands Squeeze.
The Market Direction Technical Tools are mixed but all are showing signs of weakness including the most positive tool, the Rate Of Change which was turning abruptly higher. It is now pulled back. This could be a one day event and tomorrow the Rate Of Change could change back to up, but for now it would appear the trend up is losing support from more technical indicators. Two are negative and 4 remain positive so the outlook technically still supports stocks trying to break through to the upside.
After the close there was news that Spain saw the first housing prices increases in 5 years, normally a sign of a recovery finally underway. The EU is reducing interest rates further which should spark some further economic growth and if the ceasefire holds in Ukraine, there could be a bit of a respite for stocks. The most important signal now is the 1994 level. If the market keeps trending sideways but holds above 1994 there are no concerns. But if 1994 is breached the S&P will quickly fall. It has been a very good rally from 1904.78 which was the low of August 7. The SPX has tacked on 106 points for a gain of 5.5% in a month. There really cannot be a lot of complaints but the rally looks like it has run out of steam and unless the bulls can get something going soon, the market will move lower to find support.
For Tuesday I am expecting a mixed day. With the technical indicators still 4 to 2 positive, there remains the likelihood that stocks will try to close higher. I am expecting weakness but no surprises. By the close there seems to be just enough momentum left to get a positive close, but whether that will be the start of a further leg higher, it is doubtful based on the weak technical readings at present. If however the market closes below 1994, then the rally is over in my opinion. I am not expecting a break of 1994 tomorrow.
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