The market direction outlook for Tuesday was for stocks to remain in a seesaw pattern of one day up and then down and generally moving sideways with a bias to the downside. Tuesday saw the market bounce back. It was not surprising considering the better news that arrived along with an oversold condition from Monday’s sell-off. The interesting part of the day was how the Dow followed a normal pattern of a 50% retracement while the S&P almost recovered everything it had lost and the IWM closed once more within striking distance of the all-time high.
The problem facing the market is the Fed and what it will do next. This continues to keep investors on edge. They want to be in the market in case it takes off but at the first sign of any sort of problem, investors bail. Once they bail, other investors decide the selling was overdone and stocks are a tiny bit cheaper and they jump back in. This see-saw battle is something we saw a lot of in 2007 and in 2011 and 2012. It helps keep volatility up which helps to improve the premium of options. I have a lot of hope this will continue for much of 2014. This will drive put and call premiums up and down as the market maker tries to sort out which end is up, or in other cases down. They are pros so when they find it hard to price appropriatedly you know there are going to be great opportunities for bigger profits from options.
Market Direction S&P 500 Intraday For Jan 14 2014
The market opened up then pulled back within a few minutes. The pull back only reached the opening prices and then the market rallied for the rest of the day. As you can see in the chart below the market pushed all that way into the close. Once again the S&P 500 closed just shy of the 1840 level. This 1840 has been stiff resistance for the S&P to break through and stay convincingly above.
Dow Market Direction
Whereas the S&P 500 recovered most what was lost on Monday’s sell-off, the Dow acted more in line with expectations following the big down day on Monday. Normally a market will rally back and recover about 50% of the previous day’s loss. Then the question becomes, is this just a “dead cat bounce” or is this the start of a rally. Just yesterday it appeared to be the start of market weakness. Can today be the start of market strength?
The two day chart below from the Dow set for 1 minute shows what is more typical of a recovery attempt. On Monday the Dow fell 200 points from the intraday high to the intraday low. Today then, investors would expect a 50% retrenchment or 100 points. The Dow closed up 115.92 points. So is today just a typical rally? It might be except the S&P 500 did not follow suit and neither did the IWM ETF which today closed up 1.23% recovering almost all of Monday’s loss. Let’s see what the new highs are telling us.
The NASDAQ on the other hand, jumped well beyond Monday’s losses advancing 69.71 points besting Monday’s loss of 61.36 points. The index was helped in large part by the upgrade to Intel stock which sent the stock up $1.01 for a gain of 3.96%.
Advance Declines For Jan 14 2014
Advancing issues once more outpaced decliners as the see-saw battle continues. 68% of stock advanced while 29% declined. Meanwhile the new highs were lower today with just 124 new highs versus 77 new lows.
Market Direction Closings For Jan 14 2014
The S&P closed at 1838.88 up 19.68. The Dow closed at 16,373.86 up 115.92. The NASDAQ closed at 4183.02 up 69.71.
The IWM ETF closed at $115.34 up 1.40 after losing 1.58 the previous day. Once more the IWM ETF is within striking distance of the all-time high.
Market Direction Technical Indicators At The Close of Jan 14 2014
Let’s review the market direction technical indicators at the close of Jan 14 2014 on the S&P 500 and view the market direction outlook for Jan 15 2014.
The most important support line in the S&P 500 is still at 1750. That support line is holding the market direction up at present and that has not changed. The second support level of 1780 is light support followed by third band of even lighter support at 1800. There is a growing band of support developing for the market at the 1825 level. It is not as strong as resistance at 1840 but there are more investors picking up stocks each time the S&P has trouble around the 1825 level. Yesterday I felt the S&P was going to eventually move back to the 50 day simple moving average (SMA). Today’s recovery does not negate that yet but it is an impressive recovery which bears watching for a possible break-out attempt of the previous all-time high.
For Momentum I am using the 10 period. Momentum has been the best indicator over the past two months, replacing MACD as the most accurate indicator. Momentum moved back up today but did not turn positive.
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 Jan 8 2014 which was confirmed on Jan 9. Today’s sell signal continued to gather strength pointing to further declines ahead.
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 just slightly positive today.
Rate Of Change is set for a 21 period. The Rate Of Change is positive for the 17th day and turned back up
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is still signaling that the market direction is down.
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 has changed and is back pointing to an up day for Wednesday.
Market Direction Outlook And Strategy for Jan 15 2014
My strategy remains unchanged. I am taking on smaller than usual positions but staying invested. This is the kind of market that can bring in very good premiums. The whipsawing of the market can be both daunting and frustrating to many investors. To handle this I like to step back from the hourly movements and instead concentrate on looking for good option premiums for my stocks on my watch list. There have been some pretty good opportunities over the past several trading days, all thanks to the market gyrations.
For Wednesday the technicals are mixed. Momentum is almost positive. It is joined by the Rate Of Change, Ultimate oscillator, Fast Stochastic and MACD. None of these indicators were concerned with today’s rally.
For tomorrow though I think we have a good chance to see the market try to hold recent gains. It may even try to push higher in all the indexes. So while the technical indicators are 4 to 2 in favor of lower prices I am once again breaking from the technical indicators in my outlook that stocks have a chance to close higher on Wednesday, but in general the see-saw movement looks like it will be with investors for a while yet.
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