The market direction outlook for the first trading day of 2014 was for a rally at the start and then to see if investors could hold the rally. I then expected a positive close. None of this happened. Instead investors were spooked by The Institute for Supply Management’s reading on American manufacturing which showed slowing expansion, with its index coming in at 57 for December which was down only slightly from November’s 57.3. As well Chinese manufacturing surveys showed Chinese activity slowed in December as the China Federation of Logistics & Purchasing said its purchasing managers index declined to 51 from November’s 51.4. Meanwhile a survey by HSBC Corp came in at 50.5 from 50.8 in November. Anything below 50 shows contraction.
But I think many investors were looking for reasons to sell and they got it with the above two numbers.
Weekly Initial Unemployment Insurance Claims
Meanwhile the Weekly Initial Unemployment Insurance Claims dipped by 2,000 last week to a seasonally adjusted 339,000 which continues to point to further gains in employment.
Market Direction S&P 500 Intraday For Jan 2 2014
The action today was all negative without any effort to try to rally back. Once the selling started investors stayed in a selling mood. Stocks saw a pattern of lower lows and the 1840 level was quickly broken within minutes in the morning and never recovered. The close was well below 1840 at $1831.98.
Advance Declines For Jan 2 2014
Today was almost exactly the opposite of Tuesday. Only 33% of stocks advanced while 65% declined. The new highs came in at 91 versus 85 new lows.
Market Direction Closings For Jan 2 2014
The S&P closed at 1831.98 down 16.38. The Dow closed at 16,441.35 down 135.31. The NASDAQ closed at 4143.07 down 33.52.
The IWM ETF closed at 114.11 down 1.25.
Market Direction Technical Indicators At The Close of Jan 2 2014
Let’s review the market direction technical indicators at the close of Jan 2 2014 on the S&P 500 and view the market direction outlook for Jan 3 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 very light support followed by another band of light support at 1800. Today’s drop is less than 1% but we can clearly see that there is no support at the present level.
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 positive but took a big drop today.
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 buy signal on Dec 23. That buy signal was strong and has been confirmed. Today MACD has pulled back slightly from Tuesday’s reading.
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 while positive it fell dramatically by the close.
Rate Of Change is set for a 21 period. The Rate Of Change is positive for the nineth day and is falling back slightly from yesterday’s move higher.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is now signaling the market direction is down. The Slow Stochastic is extremely overbought.
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 also signaling market direction down for Friday.
Market Direction Outlook And Strategy for Jan 3 2014
I did a few trades today but nothing of any size. The market direction indicators are pointing to more downside for Friday. Friday marks the end of the Santa Claus rally. Depending on how Friday ends, we could get a prediction for 2014. According to the Stock Trader’s Almanac the Dow has been up 14 of the last 20 years on the final day of the traditional Santa Claus rally. Today’s sell-off did not see a lot of buyers which could in part be because the sell-off was less than 1%.
Traditional though if the first two days of the year are negative the year does not perform well.
January First 5 Days Signal
The other warning system that many traders use is the first 5 trading days of January. Again according to the Stock Trader’s Almanac the last 40 years has seen full year gains 34 times if the first 5 days are positive and result in gains.
For tomorrow the Market Direction Technical Analysis indicates that stocks will head lower again. I plan to continue to look for opportunities but again I will be taking just small positions. I will post trades to twitter as soon after they occur as I can.
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