For a while on Monday it looked like perhaps the Dow would lead the market direction into the bounce I was looking for. After two days of very heavy selling to end last week,, I would have expected a serious attempt for a bounce. Instead stocks ended lower in the day despite a feeble attempt for a comeback. Let’s take a look at Monday’s action and then look to see what we might expect for Tuesday.
Market Direction S&P 500 Intraday For Jan 27 2014
Below is the 1 minute chart from Monday’s S&P 500. The morning saw a small attempt to rally at the open and then a plunge that took the S&P all the way down to 1772.88. Recalling that 1750 is major support for this bull market, that plunge to 1772.88 sent stocks to the 100 day exponential moving average (EMA). That caused investors to put some money to work and by the late afternoon the market direction had shift to up. But the rally failed to take out the early morning high so once again investors sold stocks into the close. The S&P closed just above the 1780 level marking another bearish day for stocks.
Advance Declines For Jan 27 2014
On Monday, 72% of stock declined while 26% advanced, but the number of new lows greatly outpaced new highs with 131 stocks setting new 52 week lows and just 38 stocks setting new highs.
Market Direction Closings For Jan 27 2014
The S&P closed at 1781.56 down 8.73. The Dow closed at 15,837.88 down 41.23. The NASDAQ closed at 4083.61 down 44.56
Meanwhile the IWM ETF fell $1.66 to close at $111.79.
Market Direction Technical Indicators At The Close of Jan 27 2014
Let’s review the market direction technical indicators at the close of Jan 27 2014 on the S&P 500 and view the market direction outlook for Jan 28 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). Today stocks bounced off that support around the noon hour. While the push back was not anything dramatic, we could be ready for a day or even two days of a bounce effort.
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 has plunged lower ever since.
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 extremely bearish and is often followed by a 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 now deeply oversold and ready for a bounce back.
Rate Of Change is set for a 21 period. Today the rate of change is moving lower into negative territory. It is advising that at present those investors bringing new money into stocks are simply trading and have no long-term outlook for stocks.
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 now 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 extremely oversold but today’s reading is slightly higher than Friday’s which might indicate a bounce is coming.
Market Direction Outlook And Strategy for Jan 28 2014
Lots of damage has been done to this market but the bull is still intact. The bounce today off the 200 day moving average is a start. The majority of technical indicators are signaling that a bounce back is in the works. Tomorrow could see the start although the Apple earnings may hurt the market on Tuesday and delay any bounce back.
My strategy remains unchanged. I am continuing to sell small quantities of put contracts. I did one trade of walk that profit home to momma today in Bank of Nova Scotia stock on the TSX. Meanwhile I sold some puts on Intel today at the $24 put strike. Many stocks are starting to look attractive and could easily bounce. I will be reeady to close positions if stocks can bounce higher from here.
While Apple may delay the bounce on Tuesday, it should not be long before stocks attempt a rebound. The heavier selling certainly was not seen today. We appear on the verge of a bounce. For tomorrow then I am expecting weakness because of Apple Stock, but I think we could see selling limited to a handful of tech stocks and the market attempt to build a bottom here at the 100 day exponential moving average (EMA). Following that we should see a nice bounce back before more selling arrives.
Market Direction Internal Links
Profiting From Understanding Market Direction (Articles Index)
Understanding Short-Term Signals
Market Direction Portfolio Trades (Members)
Market Direction External Links
Market Direction IWM ETF Russell 2000 Fund Info
Market Direction SPY ETF 500 Fund Info