My outlook for today was for stocks to trend sideways and take a rest. I felt going into Friday that investors would take some profits and sit out the weekend. This morning that does not seem to be the case as investors are continuing to push stocks higher. The S&P is up a quarter of a percent, the NASDAQ is essentially flat but the Dow is up almost half a percent. The Dow though fell the lowest in the recent correction and as such it has the most ground to recover. The chart below shows this morning’s activity to 11:37. The Dow is just breaking through the 50 day simple moving average (SMA) after recovering the 200 and 100 day exponential moving averages (EMA).
Momentum which actually pulled back yesterday seems to be turning back up. MACD issued a buy signal on Feb 12 and it is expanding on that signal which would indicate more upside potential.
The Ultimate Oscillator continues to point to a very overbought market.
The most concerning remains the rate of change which is still negative. Throughout the rally back the rate of change has remained non-committed. This would indicate that not a lot of investors are in the rally back up, obviously concerned that the rally is simply a strong bounce back. With the Dow trying to break the 50 day SMA that could indicate the rally has more legs and will try to challenge the high set back on December 31 which intraday was 16588.25.
The Slow Stochastic is also very overbought but continues to point higher for stocks.
Dow Market Direction Morning Comments for Feb 14 2014
The Dow broke through resistance at the 100 day EMA within 2 days and now looks ready to break through the 50 day after 4 days. But the overbought nature of the market direction up continues to warn that the market direction needs a rest to work out the overbought nature. We saw this kind of overbought activity many times last year. The Ultimate Oscillator and both the Slow Stochastic and Fast Stochastic indicators were very overbought for days last year.
We could be able to see the same but looking at volume, the rally up has not had the kind of overall volume that advises that a lot of investors who left the market in the recent correction have returned. Once the Dow recovers the 50 day SMA investors may return.
Dow Intraday Market Direction Outlook
The charts for all three indexes look solid even with the lower involvement of investors. I still think the market direction up will rest here but today should tell us. If we close strongly to the upside then we should see a continuation of the market direction move to the upside into Monday. If though we give back a lot of this morning’s rally in the afternoon, that will point to weakness for the start of next week and a chance for the markets to take a short breather. Right now at 11:37 the markets continue to look strong but I am anticipating some sideways action in the afternoon.
Internal Stock and Option Trades Links
Put Selling Strategies For Members
Covered Calls Strategies For Members
Profit And Income Strategies Index
Stock and Option Strategies For Members
Stock And Option Trades Explained For Members