Friday saw the market direction move higher, collapse lower, rally back and then close almost unchanged as politics and political comments kept investors on edge. The unemployment numbers were reasonable although they did not meet estimates and the adjustment to the prior two months certainly had a lot of analysts scratching their heads. Strange how the Weekly Initial Unemployment Insurance Claims are pointing to continued growth and the monthly is often not reflecting the same level of confidence.
Market Direction Action for Sep 6 2013
Looking at the one month S&P 500 daily stock chart you can see how the market has basically been climbing back from the big drop of August 27 which pushed the S&P into the 100 day exponential moving average (EMA). Since then the S&P 500 market direction has been pushing back up trying to capture the 1650, hold it and then move up.. The next goal has to be 1670 which will place the S&P 500 back above the 50 day simple moving average (SMA). If it can reach it and hold it then more investors will be drawn to the market. On Friday despite the plunge, rally and then push back down at the close, the S&P 500 is still above 1650 and above the 100 day exponential moving average (EMA). Part of the reason for Friday was also investor jitters over the period last week when a lot of technical damage was done on August 27. The big drop to the 100 day EMA caught a lot of investors by surprised and has made the push back up in market direction very suspect that this is just a short rally before more downside.
Market Direction and IWM
Meanwhile the Russell 2000 ETF, which trades under the symbol IWM closed up just 0.28 but it was enough to place it just above the 50 day simple moving average (SMA). While not a convincing move, watch IWM to move back above 103.82 which is set up IWM for a higher high. This must happen over the next couple of days for the momentum higher to continue. If IWM falters then so will the S&P and that is well worth keeping an eye out for.
Advance Declines For Sep 6 2013
Advancing issues actually did very well on Friday with 60% of stocks up and 37% down and for the first time in a while the new highs just slightly outpaced the new lows with 129 new highs and 123 new lows. For the market direction to firm up we need to see the new lows fall back and new highs climb.
Market Direction Closing For Sep 6 2013
The S&P 500 closed at 1,655.17 up just 0.09. The Dow closed at 14,922.50 down 14.98. The NASDAQ closed at 3,660.01 up 1.23.
Market Direction Technical Indicators At The Close of Sep 6 2013
Let’s review the market direction technical indicators at the close of Sep 6 2013 on the S&P 500 and view the market direction outlook for Sept 7 2013.
For Momentum I am using the 10 period. Momentum is neutral at this point which is to be expected after Friday’s whipsaw.
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 weak sell signal on July 31 which was confirmed August 7. MACD is sitting on the verge of issuing a buy signal. In my intraday comments on Friday I mentioned how MACD was almost ready for a buy signal. This is a good sign and we can hope we get the buy signal on Monday.
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 back positive although with a reading of 50.24 it could move either way.
Rate Of Change is set for a 21 period. The rate of change is negative and pulled back on Friday reflecting investors nervousness.
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. It is no longer 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 indicating that the market direction is up and it too is no longer oversold.
Market Direction Outlook And Strategy for Sept 9 2013
Monday is a pivotal day for the market direction. Friday saw a whipsawed market which investors can blame on politics all they want, but in the end it was investors nervousness that created the whipsaw. This shows the lack of conviction among investors and could be a signal that the rally up which has not been strong, will in the end fail. The way I see it, the market direction must break through the 50 day simple moving average (SMA) by the close of Monday or investors will begin to step back from the market. Volatility in the market on Friday hit 16.81 on the VIX Index before closing up slightly at 15.85. The VIX Index had just 3 days of declining volatility before Friday and investors remain very nervous.
The market direction technical indicators all point to momentum beginning to fade on the rally. Friday really hurt momentum up. Hopefully Friday was not the peak but we will know on Monday. The momentum indicator itself is now neutral after rising from negative to just into positive on Thursday. Investors needed a positive momentum reading on Friday to keep the rally moving. MACD is sitting on the verge of an important buy signal. If it pulls back on Monday it indicates there is just not enough strength to keep the rally going and the market needs more time and breadth.
If the market direction can push above the 50 day SMA convincingly on Monday and hold it Tuesday, more investors will be drawn in and that will improve market breadth. From there though the market direction up cannot stop but must keep pushing beyond 1670 and then tackle 1680. I have a lot of doubt 1680 can be taken out convincingly but let’s take one day at a time.
For Monday I think the bias is once more to the upside as the market direction tries to break through the 50 day simple moving average (SMA). Any further delays at reaching that goal and the rally looks set to fail.
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