The market direction on Monday was weak as expected and ended with a lower close. On the weekend I reviewed the market direction technical indicators which were 4 to 2 in favor of continued weakness. Two problems for the market direction higher have been MACD and Momentum. These two indicators have refused to support the rally of the last week. Momentum and MACD both have remained negative and MACD has been negative since Feb 13 on the S&P. We have seen this before in prior years since the 2008 to 2009 bear. Eventually the market has overcome this and pushed higher dragging momentum and MACD with it. But at the present stage with the markets sitting so high, it has been a particularly dominant problem and one that is making further gains difficult.
Economic Outlook
Some of the other issues facing investors includes the Russian-Ukrainian issue, Chinese slowdown and the mixed signals from the US economy. Sanctions being imposed by the US, Europe and Japan on Russia will have some effect both on the Russian economy which most analysts believe will enter a recession and on the world’s economies which again economists expect to see a slower growth rates. China I covered off on the weekend report and I am unchanged on my outlook there. The US economy meanwhile is showing a slight bias to slowing. Today’s Markit Economics preliminary index of US manufacturing decreased from 57.1 to 55.5 in March. This still is the second-highest reading since January 2013 but it is showing a slowing base of manufacturing activity instead of an expanding one. All of these are factors facing investors and the market direction up.
S&P Market Direction Intraday for March 24 2014
This morning investors reacted as in prior days with a big open high and then selling erupted. By 11:0 am the market direction down was pushing the S&P toward 1850. Two more attempts were made to break through the 1850 level. When that failed some investors began buying again but it was a weak rally back. The market dipped into the close. What we are seeing is a lack of conviction. The market is uninspiring. Stocks rally for a couple of days and then there is no follow through. The lack of follow through means investors turn back to selling and take short-term profits. For a lot of investors, even earning 50 cents a share is better than nothing and so they take the 50 cents. This creates choppiness and leaves no compelling reason for stocks to be bought by investors. Investors buying now are doing so with the belief that today’s prices will be higher several weeks from now. That may in fact not be the case and that worry is what is keeping so many investors on the sidelines or simply day or swing trading.
Advance Declines For March 24 2014
Today’s advance decline numbers are uninspiring as well. Declining issues were ahead at 61% versus 36% advancing. Meanwhile new highs and new lows were almost equal with just 74 new highs and 75 new lows. These numbers are not good for momentum to the upside. Volumes were up slightly today with a lot of sellers starting to move to the sidelines.
Market Direction Closings For March 24 2014
The S&P closed at 1857.44 down 9.08. The Dow closed at 16,276.69 down 26.08. The NASDAQ closed at 4226.39 down 50.40.
The Russell 2000 ETF IWM fell 1.14% or $1.35 to $117.26.
Market Direction Technical Indicators At The Close of March 24 2014
Let’s review the market direction technical indicators at the close of March 24 2014 on the S&P 500 and view the market direction outlook for March 25 2014.
The 1750 level has been holding the S&P up and now the 1840 level is the first line of support. Today saw investors keep testing 1850. This is light support and if it breaks the market will tumble swiftly to the 1840 level. If the market moves below 1840, it will be time to turn cautious and keep capital aside for a further move lower. While I am not expecting this, there are a lot of signs that it will happen before May which is when I felt the market would correct.
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 has not supported the present rally to a new all-time high and continues to turn even more negative after today’s lower close.
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 fell back away on Friday and turned even more negative today. The two biggest supporters of the rally, momentum and MACD are now both negative and pointing to further declines.
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 has fallen back and while it is positive, it has fallen to the point of being neutral. It will take just a little selling to turn it negative.
Rate Of Change is set for a 21 period. The rate of change is still positive but tumbled far today and is on the verge of turning negative as well. That will mean a significant change in the market direction outlook from up to down.
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 again for tomorrow..
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 that the market direction is down.
Market Direction Outlook And Strategy for March 25 2014
Technically the market direction is heavily weighted to the downside. Only two indicators are positive, rate of change and Ultimate Oscillator and both are so close to turning negative that they are more neutral than up. The remaining 4 indicators continue to point to more downside for stocks.
The outlook for Tuesday is more downside for stocks. I am expecting another rally attempt at the open and then a further decline before another rally attempt in the afternoon. Overall though the outlook looks to be lower for stocks into the close. While the comments from Janet Yellen last week may not have done significant technical damage, they do appear to have left an emotional scar with many investors who wonder about interest rates moving higher and what that will do to stocks.
I am still selling puts but for the market direction I am trading to the downside and at this point I am not taking positions to the upside such as the UDOW. Instead I am staying with the trend which at present is down. For puts I am continuing with trades but trying to go no further than April for my expiry period, as I am expecting April could be the last month for gains until into the late summer or even the fall.
I will do an intraday update for stocks tomorrow.
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