Thanks to a report from the Treasury Department which predicted basically financial Armageddon if the debt ceiling is not resolved, the market direction plunged from the open until Republican House Speaker Boehner indicated in the afternoon that there would be no default and a resolution would be found. I am not sure what brought the Treasury Department into the foray but it would seem obvious to just about anyone that if America does not pay its bills and creditors it would indeed be a financial calamity that would make the depression and the great recession seems like a cakewalk in comparison. But for this reason alone I could not imagine there being no resolution. Every politician knows the stakes but are simply posturing going into a resolution.
Market Direction Intraday Chart for Oct 3 2013
The day started off like so many in the past only this time the selling intensified as the 1680 level was broken in the late morning. When it broke, the S&P 500 fell almost ten points down to the 1670 level. Boehner’s comments were enough to pull the market direction back up to support at 1680 but above 1680 there just were no buyers. The Rate of Change technical indicator in the chart lower down this post shows a rapid decline, indicative of buying drying up.
S&P 500 Still Above The 50 Day SMA
Today’s morning market direction plunge placed the S&P 500 below the 50 day simple moving average (SMA). It managed to close at the 50 day, but if you look at the chart below you can see that starting September 30, the S&P is busy testing the 50 day SMA daily now. Today’s drop was worse than Sept 30’s drop. Technically this is building more weakness into the market direction.
DOW Index Below 100 Day EMA
The bigger concern at this point is that the NASDAQ and IWM were pushing into new highs while the Dow has been moving lower. The Dow Index is now trading well below the 100 day exponential moving average (EMA) and closed at previous support at 15000. The next support level is 1480 which is a mere 20 points away.
The move lower has been steady for the Dow. On Sept 30 it broke the 100 day EMA before moving back up and closing above it. On October second it again broke the 100 day more decisively and again closed above it. Today it fell through the 100 day and closed well below it.
A number of technicians over the past several days are beginning to wonder if the Dow is creating a double top. This is probably too early to call as a lot of the downside action is being caused not by economic events but by political ones. Syria and then the debt ceiling have investors on edge. The real test will be when there is a resolution to the debt ceiling fiasco. If the market direction turns up it has to be able to break the most recent top. So while it is great that the IWM and NASDAQ index are doing well, in the end it is the big caps that will decide the overall market direction.
Advance Declines For Oct 3 2013
Declining issues beat out advancing stocks with 77% of all stocks declining versus 21% advancing. However the new highs were 107 versus 99 new lows. Once again the advance decline line is indicating that despite buyers moving lower with bids they are still showing interest in stocks. Again, a debt ceiling resolution will probably lead to a big push back up but the question will be whether it will have any staying power.
Market Direction Closing For Oct 3 2013
The S&P 500 closed at 1,678.66 down 15.21 and below 1680. The Dow closed at 14,996.48 down 136.66 and just below 15000. The NASDAQ closed at 3,774.34 down 40.68. The Russell 2000 ETF, IWM was down $1.10 over just over 1% closing at $106.31. This though is still well above the 50 day simple moving average (SMA). It is also still above the Sept 30 low which was $105.24. Today the ETF moved to the Middle Bollinger Band and you can see that the Bollinger Bands are beginning to form a Squeeze. This should be watched for any sign that the recent all time highs are not going to be broken. That would indeed be bearish for the overall fall market direction.
Market Direction Technical Indicators At The Close of Oct 3 2013
Let’s review the market direction technical indicators at the close of Oct 3 2013 on the S&P 500 and view the market direction outlook for Oct 4 2013.
For Momentum I am using the 10 period. Momentum is continuing to grow to the downside. I mentioned yesterday that the movement down was gathering some steam. This must be watched. A flattening out of momentum would be good at this stage to hold the market direction from falling much further.
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. The sell signal was confirmed for a third day today as the MACD reading continues to grow in strength to the downside.
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 is still positive although down from yesterday.
Rate Of Change is set for a 21 period. The rate of change continues to be the only indicator that has remained positive throughout this latest period of weakness. It was trending sideways but today it pulled back somewhat dramatically. As explained, this shows that investors are pulling back from buying. They are becoming nervous.
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 or certainly neutral. As it looks out more than a day we could see the market stabilize early next week.
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 down.
Market Direction Outlook And Strategy for Oct 4 2013
On a day like today you have to take advantage of the volatility. I sold puts in a number of stocks where premiums were pushed up high due to investors dumping shares. This included Deere Stock, Yum Stock, Coca Cola Stock. I also picked up a few shares of Coca Cola Stock for what I hope is a bounce back and I also bought Manulife shares and sold covered calls at the $17 strike for a again what I hope is a quick 1.4% return for less than 3 weeks of work. I also bought back my Apple Puts in the morning and sold them again as stocks plunged. Finally I did the Trading For Pennies Strategy trade and an excellent Spy Put Options trade. It was a busy day. But it also tells you that while the market direction is having trouble here I am not all that concerned which is obvious as I am continuing to place capital at risk.
For tomorrow I would expect more selling and perhaps another early morning low. The market direction technical indicators are still signaling a lower day but I think investors might try to push back a little in the afternoon. Instinct tells me we could see morning selling and then some buying but no green close, while the market direction technical indicators say a lower day is in store for tomorrow. The only thing that can really boost the market direction would be an announced resolution to the debt ceiling.
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