The outlook for Friday was for the Market direction to rebound higher and then close lower. I had indicated often that I believed if 1670 broke the S&P would quickly move to 1650. If we look at the 1 minute intraday chart from Friday August 16 you can see the morning drop, point A. This was followed by a rebound high to 1663.60 which failed to recover the 1670 level. From that rebound high at point B, the market direction quickly faded to 1652.61 almost reaching the next support level at 1650. I have marked that point as C. From there a second rally to point D failed and the S&P 500 closed lower at point E.
This typical intraday move is continuing to indicate that there is more downside ahead for the upcoming week.
Oversold Market Direction
The push lower however has the market direction oversold and a bounce back may happen as soon as Monday. Any bounce back is suspect at this point in the downturn and should not be assumed to mark the end of the present round of selling.
Market Direction Closing For Aug 16 2013
The S&P 500 closed at 1,655.83 down 5.49 and clearly below the first support level of 1670 and pushing closely toward the second support level at 1650. The Dow closed at 15,081.47 down 30.72. The NASDAQ closed at 3,602.78 down just 3.34.
Market Direction Technical Indicators At The Close of Aug 16 2013
Let’s review the market direction technical indicators at the close of Aug 16 2013 on the S&P 500 and view the market direction outlook for Aug 19 2013.
For Momentum I am using the 10 period. Momentum is now decidedly negative.
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 falling deeper into sell territory.
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 now decidedly negative and reaching oversold levels.
Rate Of Change is set for a 21 period. The rate of change is now also negative and falling.
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 lower. It is 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 again for Monday but it is extremely oversold so there is some chance of a bounce perhaps to start off the day. Any bounce back up is suspect and should not be believed as indicating the downtrend is over.
Market Direction Outlook And Strategy for Aug 19 2013
The market direction trend is now decidedly lower. My Spy Put Options trades are doing very well as are the Trading for Pennies trades which are earning good returns thanks to the increased volatility. The VIX Index trades done through VIX Index calls are now up and while Monday could see a decline in volatility I do believe the direction is definitely lower at this point which means the VIX Index call options will grow in value. I will be unloading my VIX Index call options in groups as volatility climbs.
For Monday I will not be surprised to see the market direction push back up. The market is extremely oversold at this point but the trend is lower so any move back up should not be bought into. Instead I believe the 1650 level will be tested shortly and if it breaks the market direction could fall back to 1600 as the first major line of defense for bullish investors.
1650 is important as it does not have the same strength as the 1670 level. If 1650 is tested and fails to hold the market direction from falling further, it should only take a day or two at most for the market direction to break through and head toward 1600. Selling will increase if the 1650 level breaks.
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