The Market Direction today was definitely disappointing. The rally was snuffed out quickly by the question of striking Syria once again. Meanwhile the rest of the world had rallied on Monday and at the outset all the numbers coming in looked quite good with spending up 0.6%, ISM Manufacturing Index in at 55.7 although PSI Manufacturing was lower than expect coming in at 53.9. Nonetheless everything looked good at the outset. By 11:00 AM the market was falling rapidly and it never really recovered.
Market Direction Support Points Unchanged
All the support points for this market continue to remain unchanged.
A: 1680 marks the top end. If the S&P 500 can climb and stay above this then look for a decent rally. I have my doubts that this can happen but it certainly is not out of the question.
B. 1650 is paramount and places the S&P 500 within striking distance of the 50 day simple moving average (SMA). Obviously the market direction must recover this point. Today’s big opening jump shot the S&P 500 to just above 1650 but then the mood altered and the opportunity was lost.
C. 1620 at the lower end is continuing to hold this market up. It cannot do this for much longer but certainly another week could be in the cards.
D. 1600 is the last level of support left from the latest rally. When it breaks, which I think the market direction will easily do if it breaks 1620, then the market direction will definitely test the 200 day exponential moving average (EMA).
So the lines are drawn and all that remains is for the market direction to decide on a clear path. That of course, is not as simple as we investors would like.
Advance Declines For Sep 3 2013
Today despite the steep drop from the early morning rally, advancing issues still held the upper hand with 2289 issues up against 1799 down. New highs were up to 72 but new lows were even higher than Friday’s new lows with 156 new 52 week lows. The market direction may be holding steady at just above 1620 but the new lows is showing the cracks in the rally as the number of new lows keeps increasing while the number of new highs is dropping off.
Market Direction Closing For Sep 3 2013
The S&P 500 closed at 1,639.77 up 6.80 and still above 1620. The Dow closed at 14,833.96 up 23.65 after giving up a 100 point rally in the morning. The NASDAQ closed at 3,612.61 up 22.74.
Market Direction and The NASDAQ
Meanwhile the NASDAQ today was back bumping against the 50 day simple moving average (SMA). It is the NASDAQ that continues to give me hope that the market direction may push back up. The NASDAQ continues to struggle against downside pressure and tomorrow could break the 50 day simple moving average (SMA) and close above it. Wouldn’t that be nice for the bulls! This is also part of the reason why I am continuing to sell puts in this market. Despite the weakness in the Dow and S&P 500, the NASDAQ which led the market recovery from the 2008-2009 disaster remains hanging on.
Lower Highs and Lower Lows
At the same time though we cannot hide from the fact that the NASDAQ is also exhibiting the same weak pattern of lower highs and lower lows which you can see in the 3 month chart below. The NASDAQ twice now has come close to breaking the 3576 valuation which would be a very bearish signal. That’s the support line I have been closely monitoring. If there is a third test I believe it will break and the markets will definitely then fall lower.
Market Direction Technical Indicators At The Close of Sep 3 2013
Let’s review the market direction technical indicators at the close of Sep 3 2013 on the S&P 500 and view the market direction outlook for Sept 4 2013.
For Momentum I am using the 10 period. Momentum is still negative but despite today’s plunge after the big rally at the outset, momentum is on the verge of turning positive. It is still negative and we need to be aware of that but with a reading of 99.62 it is very close to neutral.
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 higher again today although still showing a very negative 3.67
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. The bounce happened today but failed to hold. The Ultimate Oscillator is still indicator another bounce could be in the works.
Rate Of Change is set for a 21 period. The rate of change is negative and trending sideways. Investors while negative are not overly so and the rate of change reflects that.
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 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 up and it too is extremely oversold.
Market Direction Outlook And Strategy for Sept 4 2013
While the market direction remains mixed once again there are still signs that the market wants to rally. If the Syrian issue had not raised itself again today, I imagine the market direction would have been a solid green one. That said there are still plenty of warning signs. MACD may be less negative but it is still very negative. Overall though everything is back pointing to another attempt to rally.
For tomorrow then perhaps investors want to try to restage the rally that failed today. Technically the whipsawing continues to hurt the chance of a meaningful market direction recovery to set new highs. But still a rally is a rally. It would be an opportunity to close some naked puts and then wait and open some naked calls for the move back lower. There is a long road to 1670 and 1680 for the S&P 500 but my goal is to earn income no matter what the market direction.
For tomorrow then perhaps we will see another rally. Right now I think the signals are so mixed that a small rally may still happen, but I still think it is best to keep trading with an eye to the downside. That means selling naked puts out of the money at support points and being prepared to roll them lower if the underlying stock falls. It means considering put credit spreads for those less comfortable sitting naked in the present market. Finally it means holding Ultra Short ETFs like in the market direction portfolio but keeping a tight stop and being ready to let them go in the event a rally is attempted.
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