The market direction is continuing to follow the technical indicators which while good for forecasting, means that the weakness will be with investors for a while yet. I have been watching all the indexes but the Dow is interesting again today. Let’s take a look.
Dow Market Direction Chart
The daily chart for the Dow below shows the extreme difficulty the Dow is having with the 16200 level. Once again this morning the Dow broke through that support level. The constant pressure on the Dow is turning the 50 day simple moving average (SMA) lower. This needs to be watched. If the Dow continues to move sideways but keeps the bias lower the 50 day will cross the 100 day which is a longer-term signal advising investors that the next step for the Dow will be lower. I had expected April to be a decent month for the Dow. I then expected a correction into the spring and/or summer months that would be larger than any of the corrections of 2013 and certainly larger than the January correction which was just about 7%.
Momentum has been incredibly weak. You can see in the chart that the rally back from the Feb 5 low actually saw momentum drop right off as the Dow hit the 50 day SMA in mid-February. Since then the momentum levels have continued to move lower.
MACD has been in a sell signal since mid March and refuses to turn positive.
The Ultimate Oscillator is oversold but at 36.06 it still has room to fall lower before I would expect much of a bounce back.
Finally the Rate Of Change which has stayed positive for most of the entire rally back from the Feb 5 lows is turning negative intraday. This is advising investors that fresh capital is not being applied to stocks. Without buying interest stocks eventually have only one way to go, down until they reach a level where buyers show up and then stocks will stop any decline. We are not at that point yet but it may not take much longer.
16200 Guideline
Keep an eye on the 16200 level in the Dow. As long as it holds, the market can continue to drift sideways with small rallies and pull backs throughout coming days. If it breaks though the Dow will definitely fall through the 50 day SMA. If the 50 day meanwhile moves lower and crosses down and over the 100 day exponential moving average (EMA) then that would be a clear signal that the market direction will shift lower.
Market Direction Outlook Into The Close For March 27 2014
The Dow continues to look weak this afternoon. It keeps managing to recover from intraday pull backs but that will only last so long. It needs to move decisively higher to remove uncertainty and get fresh capital invested from investors. I don’t see that happening today. Instead the Dow looks like it will end down 20 or 30 points. I am continuing to trade to the downside and stay with the trend which remains sideways with a bias lower.
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