The market direction outlook for Friday was for stocks to move higher. The Dow did but try as it might, the S&P could not and ended the day back below 1840. Stocks are now more than half way through January and despite this being one of the best months of the year, the market is actually lower than when it started. It is not a lot lower as it trends sideways but without improving earnings it will be hard to break the nervousness of investors and that could spell a correction. Let’s start with a look at Friday’s action.
Market Direction S&P 500 Intraday For Jan 17 2014
Below is the 1 minute chart from Friday’s S&P 500. The morning saw the market pull back but when 1840 held, investors bought in and a rally ensued that pushed the market above 1845 to 1846.04. By the noon hour the market looked able to hang on but then around 1:00 PM selling started again and the S&P 500 moved into a tight range. When there was no new high or even an attempt to retake 1845 investors sold off pushing the S&P down to $1835.27. This marked a half percent pullback from the noon hour which seemed to be all investors needed to jump back in for the last half hour and rally back. But the rally back failed to break back through resistance at 1840. 1840 has become very tough resistance for the market and despite the recent new high, the market is definitely having trouble.
S&P 500 5 Day Market Direction Trend
What we are now seeing is a repeat pattern of where there is no follow through when the market moves higher. The past 5 days are below showing 30 minute time frames. You can see that the low of 1819 on Monday and the subsequent drop at the start on Tuesday to 1815 seemed to be enough to bring investors back in. They pushed the S&P 500 back to a new high on Wednesday only to have no follow through. Without the follow through, Thursday and Friday set up the classic pattern of lower highs and lower lows. If you look at the 5 day chart from last week you can see that basically the S&P went nowhere and ended the week back below 1840 where it started the week. This is not a sign of a strong market.
Advance Declines For Jan 17 2014
Declining issues outpaced advancers with 57% declining and 40% advancing. There were 186 new highs and 78 new lows. The market direction continues to drift sideways with the bias always resting toward new highs or rising issues. However the rising issues are not strong and often they are the same stock moving higher each day..
Market Direction Closings For Jan 17 2014
The S&P closed at 1838.70 down 7.19. The Dow closed at 16,458.56 up 41.55. The NASDAQ closed at 4197.58 down 21.11.
The IWM ETF closed at $115.93 down 41 cents or 0.35%.
Market Direction Technical Indicators At The Close of Jan 17 2014
Let’s review the market direction technical indicators at the close of Jan 17 2014 on the S&P 500 and view the market direction outlook for Jan 21 2014.
The most important support line in the S&P 500 is still at 1750. That support line is holding the market direction up at present and that has not changed. The second support level of 1780 is light support followed by third band of even lighter support at 1800. There is a growing band of support developing for the market at the 1825 level. Resistance remains at 1840.
For Momentum I am using the 10 period. Momentum has been the best indicator over the past two months, replacing MACD as the most accurate indicator. Momentum is still positive but on Friday it moved lower.
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 sell signal on Jan 8 2014 which was confirmed on Jan 9. MACD is still signaling sell.
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 still positive on Friday and trending sideways with a slightly bias to the downside.
Rate Of Change is set for a 21 period. The Rate Of Change is positive for the 20th day and after turning sideways on Thursday it moved sharply lower on Friday. This could signal that start of a trend lower.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is still signaling that the market direction is up.
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 indicating that the market will move lower on Tuesday.
Market Direction Outlook And Strategy for Jan 21 2014
A few things to summarize after looking at the three charts above. First the divergence between the Dow and the S&P 500 is not uncommon and often signifies nothing. The fact the Dow was up on Friday really is not as important as the S&P 500 being down on Friday. Another point to mention is that the market can continues to move sideways and keep an upward bias for a few more days but eventually the sideways action will break to the downside if the move sideways remains the most dominant. In other words, the market direction has to push higher shortly otherwise investors are too nervous and they will sell the market lower.
The market direction technical indicators are not overly bullish. Rate Of Change has already turned sharply lower although still positive. This is signaling a change in attitude among investors. They are becoming less interested in stocks. MACD refuses to turn positive. Momentum is only hanging on to positive readings at this stage. So overall the technical indicators are 3 positive, 2 lower and 1 sideways. You can see then that the market direction outlook is back to sideways with a slight upward bias and I do mean slight. Rate of change is listed as positive but the move lower on Friday is a definite concern. Lack of buying cannot assist in keeping the index moving higher.
My personal outlook is pretty much aligned with the technical indicators. I do not see a big correction on the horizon but I see lots of little warning signs that unless investors get pushing the market higher shortly, the market will correct and fall to find more buyers.
With that in mind, I am continuing to take small positions and watching for any possible signs of the beginning of a correction. Investors want this market higher, but they refuse to risk additional capital to do so. Without conviction stocks can only hold on for so long. January has basically seen stocks holding on without any clear signs that the next move in stocks will be a lot higher. Without that, stocks will fall back to find support at lower levels. I am not bearish or bullish but neutral. I can see both sides of the argument for higher and lower prices, but I know that eventually the market direction will break up or down. This is the time to be careful and selective with smaller positions. By taking small positions only, I am easily able to protect my capital from losses and take advantage of any decline in stocks. If stocks move higher I am continuing to generate income through the smaller positions I am taking. This is the best way to trade in a sideways market and I will continue to do so until there are clear signals one way or the other.
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