The market direction outlook for Friday was for stocks to remain under pressure and move lower.
Market Direction S&P 500 Intraday For Nov 1 2013
The early morning saw a quick opening, a gap up and then selling ensured. In my intraday comments I pointed to the morning gap as a probably afternoon target for investors. By 11:00 AM the market was down below 1754 which broke the support level at 1755. A rally back up failed and over the noon hour the market made another low at 1752.70 as the market began to pressure the real support for this rally at 1750. Investors bought back in and pushed the market up. During the afternoon another test at 1:00 held around 1754 and investors pushed back up the early morning gap. When the gap was filled but the market unable to reach the early morning highs investors took profits into the close and ahead of the weekend. The market closed just shy of 1762, ending what was basically another sideways day.
Economic News for Nov 1 2013
Gold and Barrick Gold Stock
Gold has hit a two week low on Friday which pressured gold miners once again. The epic dumping of more shares to the tune of at least $3 billion in Barrick Gold also stunned a lot of investors. Needless to say the huge offering was not going well, but I am sure eventually investors will pick up more shares. ABX Stock in my opinion is not worth owning but certainly as outlined in my article on Barrick Gold Stock, it is worth trading as volatility should pick up pushing option premiums higher. But in my opinion trading in Barrick Stock needs solid strategies to insure no shares are ever assigned. This is not a stock I would ever want to own.
Supply Management
Economists had predicted a decline in the factory sector but instead the Institute of Supply Management reported the factory sector showed further expansion in October, rising to 56.4 from 56.2 in September.
China
HSBC Corp reports that its monthly purchasing managers’ index for China showed its best improvement in seven months as it rose to 50.9 from September’s 50.2. The China Federation of Logistics and Purchasing, said its index rose to 51.4 from September’s 51.1 and China’s economic growth had rebounded to 7.8 per cent in the three months ending in September, from the previous quarter. The previous quarter had come in at a 20 year low of 7.5 per cent.
Market Direction Collapse of May 6 2010 – The Flash Crash
Last in my series looking at warnings signs prior to market crashes is a look at the May 6 2010 flash crash. Analysts and market pundits love to nickname these events. The Flash Crash, Black Monday, Black Friday, Black Swan and others seem to somehow make the event seem more ominous as if there was no warning. The only event I have witnessed since starting investing in the early 1970’s that even came close was the Flash Crash. But the downturn itself was not what was surprising, it was the colossal failure of the supposed safe guards to make sure such a crash could not occur that was shocking. Let’s look at the events in the chart below.
In late February 2010 the S&P was again climbing higher breaking free of the 100 day exponential moving average (EMA) and 50 day simple moving average (SMA). The move seemed to be up. On March 30 though at Point A, MACD starting a trend of sideways signals. One day MACD would signal a positive outlook and the next a negative. All of these signals were small without any clear direction. This is fine for a few days, but instead this lasted 19 trading days which is among the highest on record of unconfirmed up or down signals. Despite this the S&P continued to push higher. The inability of the MACD tools to give any kind of clear signal as the market direction pushed higher was a signal to investors to be suspect of the move higher and to remain cautious.
Point B was a market top which was broken several days later by a new top at Point C. The very next day April 27, MACD issued a strong sell signal.
The next top at Point D was lows that B or C. By the time the lower top had been made at point D MACD had not only confirmed the market direction down signal but had widened it. Despite the market direction attempting to steer itself sideways MACD kept increasing readings to the downside. From point D the daily highs were lower continuously. This is marked as point E and F. At point F the market direction down closed at the 50 day simple moving average (SMA) and the following day May 5 it broke the 50 day and closed just below it.
By May 5 MACD was at a strong negative 5.90 indicating an impending big push to the downside.
At point G on May 6 the flash crash occurred. The crash spilled through the 100 and 200 day exponential moving averages (EMA). Many media personalities indicated that the market would quickly recover but a market crash such as May 6 will not be quick for investors to recover from. Fear always runs deep. Therefore as the market rallied back to point H which was the high of May 5, the day before the crash, I sold out of all stocks I had bought the day of the crash. No crash is easily recovered. It takes time to rebuild confidence. As you can see in the chart below the market direction turned back down after point H and fell back below the 200 day EMA.
The events leading to the May 6 2010 flash crash
The low of May 6 was 1065.79 and by May 25 the S&P was down to an intraday low of 1040.78. By July 1 the S&P was at 1010.91. You can tell that the flash crash although a failure on the part of the exchanges to control the selling implosion, was actually predicted weeks earlier by MACD which refused to confirm the rally higher for a period of 19 days. Indeed on April 27 when MACD gave a solid sell signal, it was also seen in the Slow Stochastic which also indicated the market direction had changed to down.
Market Direction Collapse Summary
You can see then that all the various market crashes had plenty of warning signs and signals for those investors who were paying attention. No only was there adequate time to prepare to profit from downturns but there was adequate time to move to the sidelines or place protection on longer term positions. While no one can judge or predict when the next market crash will occur it is, as you have seen, a rare event when there are no warning signs. It is investors themselves who often fail to see the signals. Even many investors who do see the signals fail to act, hoping that the signals are wrong. It is rare when they are.
Advance Declines For Nov 1 2013
For the fourth day this week, decliners lead advancers, and on Friday decliners were ahead with 53% of stocks declining and 44% advancing. Meanwhile 496 stocks set new highs and 134 new lows. Friday marked another day of declining new highs, another signal that the rally is running out of energy. Still though the percentage of stocks declining was lower today than Thursday and continues to show a lot of strength.
Market Direction Closing For Nov 1 2013
The S&P 500 closed at 1,761.64 up 5.10. The Dow closed at 15,615.55 up 69.80. The NASDAQ closed at 3,922.04 up 2.34. The IWM ETF failed to follow the other indexes higher. It closed down 0.48 or 0.44% to 108.71 as it continued to pull away from its all-time high.
Market Direction Technical Indicators At The Close of Nov 1 2013
Let’s review the market direction technical indicators at the close of Nov 1 2013 on the S&P 500 and view the market direction outlook for Nov 4 2013.
For Momentum I am using the 10 period. Momentum is still positive but continued to decline on Friday.
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 buy signal on Oct 14. MACD has been declining since October 22. While the readings are still positive, they are still falling. No sell signal yet and Friday’s push up stalled the decline in MACD signals but at 1.92 for Friday it won’t take much more downside pressure to turn MACD to a sell signal. Remember, MACD has been accurate with every call this year so it bears watching.
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 lower again today but remains positive.
Rate Of Change is set for a 21 period. The Rate Of Change is moving sideways now with a bias to the downside.
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 and it is overbought.
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 Monday is down and it is overbought.
Market Direction Outlook And Strategy for Nov 2 2013
I had expected Friday to close lower. That did not happen despite the morning selling. The S&P 500 is hanging tough here but there are lots of warnings signs now. Every technical indicator was unimpressed with Friday’s rally back. All of them continue to decline. The most telling remains MACD and the two stochastic indicators. Both stochastic indicators are pointing to downside moves in the S&P for the start of the week. MACD is still declining even with Friday’s push higher although no sell signal has been issued.
My personal outlook is that the market wants to push higher and Monday we could see that happen. The technical indicators though are saying Monday we will be lower. At this point I have to side with the market direction technical indicators primarily because they have been right more often than I. By always watching the market direction technical outlook you are never unprepared. Friday’s readings are a great example. They point to more weakness which warns investors to be cautious to the downside. They also assist me in realizing that any move down is worth trading because a move lower could be over exaggerated by investors if selling starts. But if the outlook is wrong I am still making profits with Put Selling and know that while weakness could be within the market, it is still hanging in. There has been a huge inflow of capital this year into stocks. It could be just enough for a rally either sometime in November or into the December period. Whatever the case I know I will be there profiting from it. That’s the beauty of watching and studying market direction, I am always prepared no matter what the market decides to throw at me.
For Monday then I am looking for continuing weakness, so the bias remains sideways but down. Enjoy your weekend.
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