The market direction outlook for Friday was for a bit of a pullback which as explained on Thursday was expected after such a terrific rally, but then a push higher and a green close. The market direction was oversold going into Thursday’s huge rally. All it took was a whiff of a possible resolution to the debt crisis and investors were back buying. As explained in my market direction outlook on Thursday, a lot of analysts called Thursday’s rally a relief rally and nothing more. Many are still looking for the market direction to push back down. This could of course happen especially if there is no resolution and the politicians allow for a default, which in my opinion would be irresponsible and show the world just how polarized American politics have become. However I am still not expecting that to be the case. I do believe there was enough strength in Friday’s push to confirm the rally from Thursday. Before looking at the outlook for Monday Oct 14 though, I have to point out that a move of almost 400 points higher in the Dow will normally see some selling and that selling could push the Dow Index down 90 to 100 points. What we really need to focus on though is the close. If the close is still higher than Friday’s open then the market direction up is still confirmed.
Market Direction Charts For Oct 11 2013
S&P 500 Market Direction
The most important aspect at the present time for market direction is not the intraday activity for Oct 11. It is the two days combined and what will happen on Monday. Thursday Oct 10 saw the market close up big, ending the day at $1692.56 marking the second best rally of 2013. Friday Oct 11 saw an intraday low of 1688.52. This is not bad, but it would have been better if the market direction had opened at $1692 and pushed higher or stayed higher. Still though the low of 1688.52 for Friday is not a concern. Monday though needs to close above $1692.56 to confirm the rally has some legs to it. It should not fall back much below $1688.
Dow Index Market Direction
The Dow has been leading the market direction lower for some time. It has had the worst record in this downturn and on Wednesday it broke through its 200 day exponential moving average (EMA). Thursday though it came roaring back closing at 15126.07 at the highs for the day. The following day it fell only slightly intraday reaching a low of 15100.13. For Monday we need to see the Dow Index hold no lower than 15100.13. But it must close higher than 15126.07 to also confirm the Market Direction trend is still higher.
The Market Direction technical indicators on the Dow Index are not as strong as I would have liked. MACD, Rate Of Change and Momentum on Friday were still negative despite two days of heavy buying. This is a bit concerning and we will most likely see some selling on Monday as a result.
Advance Declines For Oct 11 2013
Friday still had a decent advance/decline ratio. 72% of all stocks advanced versus 26% declining. 189 stocks made new 52 week highs while 88 made new lows. The market direction was still strongly bullish on Friday and the number of new highs was very nice to see.
Market Direction Closing For Oct 11 2013
The S&P 500 closed at 1,703.20 up 10.64 and back above 1700. The Dow closed at 15,237.11 up 111.04. The NASDAQ closed at 3,791.87 up 31.13. IWM ETF rose 1.45% which was excellent on top of the 2.41% gain from Thursday.
Market Direction Technical Indicators At The Close of Oct 11 2013
Let’s review the market direction technical indicators at the close of Oct 11 2013 on the S&P 500 and view the market direction outlook for Oct 14 2013.
For Momentum I am using the 10 period. Momentum on Friday managed to push back to positive. It is just barely positive but still it’s better than being 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 the S&P 500 on Sep 30 which was confirmed Oct 1. MACD on Friday stubbornly remained negative. This matched the negative reading from the Dow Index. MACD has been a very accurate indicator so this should be watched.
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 climbing higher, a good sign.
Rate Of Change is set for a 21 period. The Rate Of Change is positive for the second day showing that on Friday buyers were back picking up 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 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 for Monday is also up.
Market Direction Outlook And Strategy for Oct 14 2013
The Market Direction Technical Analysis indicators are no longer presenting a mixed picture. Only MACD is now negative which is a bit concerning since it remains among the best indicators of market direction. MACD could be telling investors that there still is some underlying weakness that the overall numbers and advance/decline ratios are not signaling. But aside from MACD the two stochastic indicators are both showing a strong move higher for Monday and into the start of the week. Momentum is still weak but it is positive and that is a plus for market direction to continue to the upside.
Technically then, the market seems poised to move higher, but after two terrific rallies on Thursday and Friday, the market direction, while not overbought, often will want a rest or a slight pullback to test for support. Our eyes should be on the charts I marked above to make sure that the numbers we need to confirm the market direction is higher, are solid for Monday. If the markets close below the numbers I have marked, then weakness remains and the market could pull back further. Again, I am not expecting any severe downturn but investors will remain anxious if the debt ceiling fiasco continues into the start of the week.
Politicians must set aside their difference and work to a solution. A non-solution will tumble the market direction lower. Therefore this market remains still on edge and over the weekend not a lot of progress seemed to have been made for the debt ceiling issue to be resolved even temporarily. As both sides in the debate continue to posture it is evident that in general Americans will hold their political leaders of both sides accountable if they fail and the economy suffers for it. I am not expecting that to happen.
For Monday then I am expecting some weakness in the market direction and watching my charts that both markets, the S&P and Dow manage to keep the market direction above my targets. I am expecting both of them to do that on Monday.
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