My market direction outlook for Tuesday was for the markets to continue to move lower. I indicated yesterday that the Dow appeared intent on moving to the 200 day exponential moving average (EMA) and that all the indexes would note this and eventually pull back. Today that is what happened to the indexes. As well I have mentioned several times that once the S&P broke down 1680 and fell to 1670, it would retest the 1670 level. The S&P 500 did that today and easily fell through 1670 and 1660 to close at the 1655 level. Last night I presented the chart below which showed the various support levels for the S&P 500. You can see that we are just 5 points away from support at 1650. As explained, 1680 was the stronger support line. 1670 had very soft support and it showed as the market collapsed through it easily. While there is some support around 1625 to 1628, it is very light and should delay any further slide by just an hour or two if the market direction continues to move lower. The next support level that has any real strength is 1600.
Market Direction Intraday Chart for Oct 8 2013
To see today’s action in the S&P 500, the 5 minute chart gives a very nice overview. The market at the open tried to hold above 1670. The test of 1670 began around 10:30 and in short order 1670 broke. When that happened the market immediately tried to stage a rally back which failed. When it failed the market direction continued to move sideways with a bias down. The last half hour saw heavier selling as the market direction pushed lower into the close. The market direction down is extremely oversold. 
DOW Index Heading Toward 200 Day EMA
The Dow index market direction closed just above the 200 day exponential moving average (EMA). Normally this type of drop would result in a bounce back attempt tomorrow.
Advance Declines For Oct 8 2013
Declining issues were again far in the lead today with 77% of all stocks declining versus 19% advancing. New lows today outstripped new highs with 113 new lows versus 50 new highs.
Market Direction Closing For Oct 8 2013
The S&P 500 closed at 1,655.45 down 20.67 or 1.23%. The Dow closed at 14,776.53 down 159.71. The NASDAQ closed at 3,694.83 down 75.54 which was the worst performing with a 2% drop. This is to be expected though as the NASDAQ has been the best performing index.
IWM ETF fell to $104.06 or 1.62 percent.
Market Direction Technical Indicators At The Close of Oct 8 2013
Let’s review the market direction technical indicators at the close of Oct 8 2013 on the S&P 500 and view the market direction outlook for Oct 9 2013.
For Momentum I am using the 10 period. Momentum is building to the downside again although it is no more negative than a few trading days ago as you can see in the chart.
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 remains among the very best of technical indicators when it comes to judging underlying market direction. It turned negative on Sept 30 and has been right. Today it continues to build 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 once more negative but not oversold. There is more room to the downside.
Rate Of Change is set for a 21 period. The decline in the rate of change has now placed it solidly negative. This tells us that investors are leaving the market and those buying are moving their bids lower.
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. It is extremely oversold.
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 strongly. Yesterday it was correct although I made a mistake on the chart and wrote UP when I meant Down, but it seems that investors spotted the mistake and had not trouble with today’s action. My apologies for the error in my writing the chart.
Market Direction Outlook And Strategy for Oct 9 2013
The Market Direction Technical Analysis indicators are clearly showing there is more downside to come. Support levels are being broken steadily now. The market direction is becoming firmly entrenched lower but this can still change if Washington acts. Meanwhile the market direction now is very oversold and while the technical indicators say the trend is still down and down strongly, instinct again tells me that the market could try a rally tomorrow which will probably fail, but a rally nonetheless.
The S&P today easily broke the 50 day simple moving average (SMA) and moved to the 100 day exponential moving average (EMA). Remember that even when one index such as the NASDAQ seems to be telling investors that all is well, no one can escape the Dow. It holds the big cap stocks that in the end matter the most for market stability. The Dow has been telling investors for a while now that all was not well. The other indexes today finally took notice.
For tomorrow the technical indicators say we are moving still lower. My instincts after over 3 decades of investing tell me a bounce could be in the works, but it will be short-lived until Washington solves the debt ceiling fiasco. Meanwhile earnings were out for YUM Stock today and they were poor. If that is indicative of the earnings outlook for a lot of stocks this quarter, then we need to trim our positions back a little, and move to the downside with our positions. If the Dow breaks below 200 that will make a significant turn for market direction. It will tells us that if we are holding stocks long-term we should be either buying put protection or moving to sell in the money covered calls to earn some income to the downside. If we are holding naked puts we should trim out those that are in a profit position and scale back others that are not to raise cash for Put Selling at better and lower prices.
I am not expecting a crash or severe market direction drop. The Weekly Initial Unemployment Insurance Claims are not poor enough to warrant such a reaction. But politicians need to wake up and realize the folly of their tantrum ways. It’s time to grow up and do what the country asks and that is govern through compromise and intelligence. Letting the country reach this stalemate is anything but intelligent.
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