September 3 marks the beginning of a new month of trading as the summer period draws to an end. The first trading day of September has seen stock markets higher in 13 of the last 18 years. The last trading of September has seen the market direction lower in 12 of the past 19 years. Last year (2012) stocks ended up 2.4% but then September was followed by October and by November the market direction was decidedly down and analysts were back talking about the reappearance on another bear market. That didn’t happen though as the Fed stepped in with more liquidity boosting stocks to the present levels.
September though has the dubious distinction of being considered the worst month of the trading year. Looking at the chart from last year though the market for September and October was really more in a sideways pattern which made for some very good trades. Volatility should be higher this fall and unfortunately I no longer have my VIX Index Calls. I may have to buy some shortly on any dip but I am hoping the market direction moves up for a bit in September and pushes the VIX Index calls lower so I can buy some for later in the fall.
Recent Correction Still Is Small
The recent correction though is still small in relation to many past corrections. That could be a bad thing. There could be more downside ahead before the market can regain strength. There are a lot of issues facing the markets right now. Everything from Syria to the economy to Fed scaling back of Quantitative Easing, but then, the markets always have something facing them.
Below The 50 Day SMA
With all the major indices including the Russell 2000 now down below the 50 day simple moving average (SMA) the market direction has been clinging to hold the 100 day exponential moving average (EMA). Normally the fight at the 100 day EMA is short lasting only a few trading days before the market decides one way or the other. I don’t have a crystal ball big enough to look that far out but at present the market direction down seems to have the stronger hand. That said, any good news, especially on Syria could get a rally started. The problem is the S&P 500 has to recover back above 1680 to keep the hopes of a continuing rally alive and revenues have not been strong enough to push stocks that high and keep them higher.
Advance Declines For Aug 30 2013
On Friday August 30 declining issues made up 67% of the volume with a total of 2756 stocks declining versus 1243 advancing. Meanwhile new highs was down to just 35 while new lows were up again, this time at 133.
Market Direction Closing For Aug 30 2013
The S&P 500 closed at 1,632.97 down 5.20 but still above 1620. The Dow closed at 14,810.31 down 30.64. The NASDAQ closed at 3,589.87 down 30.43.
Market Direction Technical Indicators At The Close of Aug 30 2013
Let’s review the market direction technical indicators at the close of Aug 30 2013 on the S&P 500 and view the market direction outlook for Sept 3 2013.
For Momentum I am using the 10 period. Momentum is still negative but it has not fallen further or risen higher. The oversold condition of the market direction down could be having an impact on momentum.
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 almost unchanged from Thursday with a negative 4.47
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 extremely oversold. Normally a bounce is imminent with a reading this oversold for this long.
Rate Of Change is set for a 21 period. The rate of change is negative and trending 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 more neutral than up or down. It is also 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 indicating that the market direction is down and it too is extremely oversold.
Market Direction Outlook And Strategy for Sept 3 2013
The market direction remains mixed but there are some signs that the selling may be slowing. Momentum is not falling lower, MACD is almost unchanged, the Slow Stochastic is turning neutral on market direction and is extremely oversold and the fast stochastic is extremely oversold. Meanwhile it is rare when the Ultimate Oscillator stays this oversold for such an extended period without some kind of rally.
Therefore September 3 marks the start of another month and investors tend to be optimistic. The market direction technical indicators are pointing to more downside but also hinting that a bounce could be in the works. I won’t be surprised then is Tuesday September 3 brings an attempt to rally. Whether the market direction can stay up longer than a few days though remains to be seen. For Tuesday then look for a market direction bounce back attempt. It may fail, but I think investors are going to give it a try.
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