On Tuesday stocks finally got the expected rally. A lot of analysts complained after the markets closed that the rally lacked conviction, breadth and failed to recover much ground. Actually, I didn’t think the rally was all that bad considering the mood of investors has turned glum. The latest tickersense poll shows that whereas last week the bullish sentiment was 46% and bearish 30%, this week the bullish sentiment has changed to 34% and bearish at 43%. Thursday and especially Friday last week took a toll on investors. Meanwhile today was the aftermath of the Apple Stock fallout from their latest quarterly profit. By the close Apple Stock had lost $44.00 of value and fallen 8% to close at $506.20 placing my biweekly Put Selling strategy trades in the money. More on that over on the members site. Let’s look at today’s action.
Market Direction S&P 500 2 Month Daily Chart
In the two month chart below was can see that today’s action is not unexpected as the market bounced off the 100 day exponential moving average (EMA). The drop from Thursday and Friday of last week pushed the market direction deeply into oversold territory and a bounce had to happen. It really was more a question of when. Normally in a bull market a blow-off of the sideways action stocks have seen since the start of January is not unexpected and almost always it will shock many investors with the strength of the move lower. Last Friday got all the bears back talking as they have been silent for a very long time. But with the S&P back to the 100 day moving average, almost always we will see a day where stocks try decide whether to drop further or tread water. Monday was the tread water day. Tuesday was the bounce back day and now it is up to Wednesday for the market to decide whether it will move higher or move sideways along the 100 day moving average. Let’s look at the market technical indicators before deciding what to expect for Wednesday.
Market Direction S&P 500 Intraday For Jan 28 2014
The 1 minute intraday chart for Tuesday shows a number of interesting events. The first rally happened right at the open and stocks pushed from support at 1780 to 1786. When that held, stocks entered a second rally which ended just shy of 1794 around 10:05. That ended up being the high point for the entire day.
The market then entered a period where investors could not decide how to commit to the rally. Stocks faltered and there were many opening gaps as investors did indeed lack conviction to buy. But shortly before noon a low was put in around 1784.50 which matched the top of the 1st rally. This seemed to get investors a bit more excited and they began to buy until by the close they were back to the morning highs of the second rally. From there investors sold the market slightly lower into the close. The action was really more of a trading environment for Tuesday. Investors were very cautious in the morning which resulted in the numerous gaps. All the gaps were filled in the afternoon once the low was put in shortly before the noon hour. Once the market began to climb, I bought calls using the Trading For Pennies Strategy on the Spy Put Options. The results were not spectacular but it was an easy trade primarily because with so many gaps, I felt that the market would probably push higher and close all the morning gaps, which is what happened.
Advance Declines For Jan 28 2014
Tuesday was the opposite of Monday. 73% of stocks rose whereas on Monday 72% declined and 24% declined today whereas 26% advanced on Monday. However the important number today was the new highs and new lows. There were only 41 new highs today but 102 new lows. So while stocks were moving higher, many were continuing to set new lows. This could be a signal that we could see another up or sideways day tomorrow or even into Thursday but selling is still ahead of stocks at some point this week. To negate that, stocks need to have a lot more new highs again.
Market Direction Closings For Jan 28 2014
The S&P closed at 1792.50 up 10.94. The Dow closed at 15,928.56 up 90.68. The NASDAQ closed at 4097.96 up 14.35 despite Apple Stock’s decline.
Meanwhile the IWM ETF rose 1.06% by $1.18 to close at $112.97
Market Direction Technical Indicators At The Close of Jan 28 2014
Let’s review the market direction technical indicators at the close of Jan 28 2014 on the S&P 500 and view the market direction outlook for Jan 29 2014.
The most important support line in the S&P 500 is now at 1750. That support line is holding the market direction up at present and that has not changed. The other levels of support have all broken except 1780, which is light support but sits at the 100 day exponential moving average (EMA). Stocks have moved up higher away from the 100 day exponential moving average (EMA). At present though this is just a bounce out of an oversold condition. Stocks will need another day or two to point out which way they will turn.
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 turned negative on Thursday last week and moved up slightly today reflecting the bounce in stocks but it is still quite negative.
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 refused to turn positive since Jan 8. Today’s reading is still quite bearish and could assist a continuation of the bounce.
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 oversold which could assist in another day of movement higher for stocks..
Rate Of Change is set for a 21 period. The rate of change is still negative but moved higher reflecting some buying interest on the part of investors.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling that the market direction is down and it is still oversold.
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 and it is no longer extremely oversold, but still it is reflecting an oversold condition.
Market Direction Outlook And Strategy for Jan 29 2014
The bounce back in the Fast Stochastic is common after such heavy selling on Friday. This is a bull market still so I will not be surprised to see the trend slip sideways with perhaps a somewhat bias higher. That said, the fast stochastic often has this jump, such as we saw today and then it pulls back once again on the next day which would be tomorrow.
The other technical indicators are all quite negative but the oversold nature of stocks is still strong enough that stocks could rally tomorrow.
At this point though the bounce is very suspect and almost always we will see a retest of the low made yesterday. That said, if the market can push back above Friday’s open that would be a good sign that the bounce may have more steam under it and will recapture more lost ground.
I will be watching for the rally to see if it can capture more than half of what has been lost. If it does, that will be key to determining whether the selling is over. I doubt selling is at an end. Looking at the technical indicators above, there is a lot of strength pointing to lower prices.
For tomorrow though, I am expecting more sideways action but the outlook up or down is almost equal at this point. I think it will only be a day or two before we get a clear signal as to the direction stocks will take next.
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