Market Direction Outlook For March 19 2014 – Mixed, Weaker but Yellen Speaks

The market direction outlook for Tuesday was mixed. Stocks could have moved higher or slightly lower but the overall message from yesterday’s action was that the chance of bigger declines was greatly reduced. The amount of doom and gloom articles is flooding investors and I have been receiving a lot of emails from investors concerned about the market gyrations. The best advice I can provide is to not buy into the bear “philosophy” at this stage. Remember that when a bear markets commences few expect it and even fewer spot it. With so many sites filled with gloom it is not surprising investors are concerned. I had one investor send me a link to an article entitled “New doomsday poll: 99.9% risk of 2014 crash” and another sent me a link to “Dow-pocalypse Now” from Barrons. About all I can advise is that 2013 was an easy year for making money for most investors. Just buying an index ETF should have returned at least 20% last year but those kinds of years are very few.  Instead consider that when a serious correction arrives or even the next bear market there will be time to set up positions to enjoy profits on the way down and to make profits off long-term holdings. But right now it is better to stay with the trend and no bet against it.

Yesterday there were 4 catalysts that pushed stocks. On Tuesday the biggest catalyst seem to come from Putin’s assurance on the independence of the Ukraine. That was the biggest reasons for stocks to continue higher. Still though it was great to see and helps to confirm yesterday’s big advance. Let’s look at today’s market direction action.

S&P Market Direction Intraday for March 18 2014

Yesterday most of the jump in stocks took place early in the day and the remainder of the day was simply sideways action. That kind of action on a big up day often signals a lot of short covering. Today though was better technically speaking. I showed the 1 minute chart in my afternoon comments so I thought I would look at the 5 minute chart this evening. Just as we saw yesterday, the morning saw a sharp rally. By the close of the day the morning high ended up being the closing high but that was not the most important aspect of the day. What we saw throughout the day was the market rising through a series of higher lows through the day. This is buying pressure keeping the market direction up and what is needed to build strength into momentum for a push higher.

Market Direction Intraday March 18 14

Technical Bounce but also a Change To Up

Yesterday we asked if this was just a technical bounce or change to up. Today the answer is it looks like both. Today’s move higher added another 13.42 points to the rally. This brings the total gain over the past two days to 31.12. This is more than the loss of Thursday and Friday of the previous week. You can see Thursday and Friday as well as Monday in the chart from yesterday which is below. Basically, in two days the big decline of Thursday March 13 has been recovered and added to on the upside. Intraday the S&P touched 1873.76 which might be barely a day away from the all-time high of 1883.57.   Technically much of the rally can be attributed to the Crimea resolution as far as investors are concerned, but overall the move higher looks to have some more room to rise. Tomorrow we could see some weakness after two days of recovery rally but it should be shallow unless something unexpected happens in the Crimea.

technical bounce or change back to up

Advance Declines For March 18 2014

Today the market direction high built on yesterday’s new highs with 156 new 52 week highs and just 64 new lows. 75% of stocks were advancing which is better than yesterday’s 70%. 23% were declining which was less than yesterday’s 27%. The advance decline ratio favors the bulls.

Market Direction Closings For March 18 2014

The S&P closed at 1872.25 up 13.42. The Dow closed at 16,336.19 up 88.97. The NASDAQ closed at 4333.31 up 53.36.

The Russell 2000 ETF IWM rose more than any of the other indexes climbing 1.46% for a gain of $1.72 to reach $119.78 and again within reach of the all-time high of $120.58.

Market Direction Technical Indicators At The Close of March 18 2014

Let’s review the market direction technical indicators at the close of March 18 2014 on the S&P 500 and view the market direction outlook for March 19 2014.

Market Direction Technical analysis Mar 18 2014

The 1750 level has been holding the S&P up and now the 1840 level is the first line of support. The market continued to climb higher today and the S&P 500 has now recovered all the decline and is sitting within a few points of challenging the all-time high.

For Momentum I am using the 10 period. Momentum has been the best indicator over the past three months, replacing MACD as the most accurate indicator. Momentum unfortunately is not showing support for this rally but today turned back negative after yesterday’s advance into positive readings.

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 Feb 13. MACD is now rising but still shows a sell signal.

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 turned back positive today but the reading is not strong and could easily turn back down. Still at present it is positive and shows support for the rally higher..

Rate Of Change is set for a 21 period. The rate of change is still positive and did not once turn negative in the recent selling. Today it move higher again signaling that there is buying interest among 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 now 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 signaling that the market direction is also back to up with a strong up reading for Wednesday.

Market Direction Outlook And Strategy for March 19 2014

Yesterday the outlook was mixed. Today the technical timing tools are again mixed but after two days of strong buying we could see some weakness. Momentum turned negative today which could be a signal that the short-term rally is overdone. Meanwhile the MACD is still negative but turning back up and the Rate Of Change, Slow Stochastic, Fast Stochastic and Ultimate Oscillator are all positive. That means there are 4 indicators predicting higher valuations are ahead and only momentum is predicting a short-term pullback. MACD remains negative.

Based on the technical indicators the outlook for tomorrow should be higher and perhaps that is what we should expect from stocks. However the last two days has seen strong gains and on Wednesday Fed Chair Yellen will be speaking. That could keep a lid on the market action until into the afternoon. Remember that Fed comments tend to be catalysts for the market one way or the other and often we can only predict what may be discussed. The economic numbers no longer point to a possible slowing on the tapering so I doubt we will hear anything change there. Still it is surprising how simple or small comments from the Fed can move the market and in an instant.

My personal outlook is that we could see weakness on Wednesday after two great up days. The market may be reasonably flat in the morning as investors wait for Fed Chair Yellen’s comments in the afternoon. The movement higher today confirmed yesterday’s advance and now with the rally having recovered all the losses from the downturn of last week, momentum still rests with the bulls and further gains. Any pullback in market direction tomorrow should be traded in my opinion. I know if there is down action it will see me selling more puts on the stocks in my watch list.

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