The market direction outlook for Friday was for the market to continue pushing higher but more with a sideways action than straight up. Instead the market pushed up another 0.65 percent. The buying is increasing from investors but the market direction up has been so strong that it is extremely overbought.
Once again the Dow was the worst performing index but even it managed to recover from morning selling and close in the green. The NASDAQ had a huge day as the index was up 51.13 points for a gain of 1.32%. The S&P 500 set another new intraday all time high and the NASDAQ set another high which that index has not seen in 13 years. Meanwhile the Russell small cap was up 1.14% and set another new all time high as well. Records everywhere are being broken by the indexes.
Now media pundits are talking about this bull market as possibly ending up being one of the strongest on record. This bull market is not anywhere near the strongest on record yet but to hear them talking was certainly worth a chuckle. Just a few trading days earlier they had brought out the perma bears as Washington seems unable to reach a short-term resolution. The one I enjoyed the most was Marc Faber who in October last year announced that he was bearish on all assets and predicted a global recession. Once again wrong, he was back predicting a collapse to equities before the end of the season but he did mention that he was not 100% in cash as he “could be wrong”. What a way to invest.
Market Direction S&P 500 Intraday For Oct 18 2013
The intraday 1 minute chart for the S&P 500 below shows a return to the early morning pattern of selling and then back to the upside. Once again this pattern continues to create profit potential in my Trading For Pennies Strategy. The morning on Friday saw a double test and then the market spent the remainder of the day climbing. A late afternoon second test for support then saw the S&P 500 close almost at the highs. You can tell now that traders are starting to take profits into the mid to late afternoon. You can see the double highs in the chart below during which traders were taking profits. With the market heavily overbought it is just a matter of time before it will pull back to rest.
Advance Declines For Oct 18 2013
Advancing issues are now outpacing declines regularly. On Friday 70% of stocks advanced while 28% declined. The number of new highs hit 478 on Friday with just 78 setting new lows. The new highs are indicating just how hot the market direction up has become. This won’t last and there will be a short pullback or rest very soon.
Market Direction Closing For Oct 18 2013
The S&P 500 closed at 1,744.50 up 11.35 and into another new record high. The Dow closed at 15,399.65 up 28. The NASDAQ closed at 3,914.28 up 51.13 setting nother new 13 year high. IWM ETF closed up 1.14% setting another new high at $110.69.
Market Direction Technical Indicators At The Close of Oct 18 2013
Let’s review the market direction technical indicators at the close of Oct 18 2013 on the S&P 500 and view the market direction outlook for Oct 21 2013.
For Momentum I am using the 10 period. Momentum continued to push higher into positive territory but turned flat as the market continues to heat up and is pushing hard into overbought territory.
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 Oct 14 and today the reading continues to climb.
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 still overbought and indicates that the pressure to the upside is weakening slightly as it now turns flat rather than higher.
Rate Of Change is set for a 21 period. The Rate Of Change continued positive today and climbed higher as more investors are backing buying.
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. 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 signaling that the market direction for tomorrow is also up and it is extremely overbought as well.
Market Direction Outlook And Strategy for Oct 21 2013
The market direction still remains to the upside but it is very overbought. The number of new 52 week highs is expanding at a rapid rate. The rate of change is showing that compared to three weeks ago, investors are back buying into this rally. The strength is strong but the overbought condition should stall the market direction. The problem here is the Dow Index which has lagged the recovery will want to catch up. This could keep the market direction moving higher into Monday, as investors buy the Dow big cap stocks and assist in keeping the overbought condition active.
At some point though the market will stall and begin to work out the overbought condition. The market cannot sustain this many new 52 week highs every day without a rest period to work out the overbought condition. My bet is on the start of the week. Monday then could see some further buying but I think the market direction will begin to slow as the overbought condition takes a hold of the market direction up.
Nonetheless overall the market direction remains steady so any dip will be an opportunity to continue to sell puts on stocks.
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