The Market direction outlook for Wednesday was down but any indication by the Fed that they would delay a scaling back of Quantitative Easing would rally the market. This of course did not happen and the Fed seems content to begin scaling back, even if timidly at first, sometime this fall and many analysts believe as early as September. If the scaling back is small and very gradual the stock markets might hold back sellers but if the Fed should scale back too quickly and then statistics start to show a possible slow down then I won’t be surprised to see the stock market pull back hard.
Market Direction Action for Aug 21 2013
The 5 minute chart below shows today’s market direction action as the market stay sideways for most of the day and then in the afternoon around 2:00 PM the market shot higher on investor “hopes” that the Fed would delay scaling back of Quantitative Easing. When that was not the case the market direction turned down and closed at the lows for the day.
Market Direction Close Below 50 Day SMA
The market direction was unable to recover the 50 day simple moving average (SMA) and is holding just above the 100 day exponential moving average (EMA). In most instances usually if the market direction fails to break back above the 50 day SMA within a couple of days, it collapses to below the 100 day EMA.
NASDAQ Market Direction Still Above the 50 Day
Despite the Dow and the S&P 500, the NASDAQ still held above the 50 days simple moving average (SMA). A good sign for the bulls as the NASDAQ Index has led most of the market recovery since the crash of 2008 to 2009.
Market Direction Closing For Aug 21 2013
The S&P 500 closed at 1,642.80 down 9.55. The Dow closed at 14,897.55 down 105.44 and now below 15,000. The NASDAQ closed at 3,599.79 down 13.80.
Market Direction Technical Indicators At The Close of Aug 21 2013
Let’s review the market direction technical indicators at the close of Aug 21 2013 on the S&P 500 and view the market direction outlook for Aug 22 2013. All the technical indicators are still negative and a number remain extremely oversold.
For Momentum I am using the 10 period. Momentum is strongly negative still but has not fallen below the previous lows.
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 continuing to fall further.
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 strongly negative and has reached extremely oversold levels. Normally these types of readings are followed by a rally back up.
Rate Of Change is set for a 21 period. The rate of change is negative and pushing sideways.
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 although the signal is so weak that it is more neutral than up. The Slow Stochastic 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 and it too is extremely oversold.
Market Direction Outlook And Strategy for Aug 22 2013
The market direction trend according to the Market Direction Technical Tools is that the direction is still lower. However there are now so many extremely oversold signals that a rally cannot be too far away.
Investors may be over reacting to the Fed’s design to scale back their Quantitative Easing program. The likelihood of the scale back being massive is small in my opinion. There is limited strength in the economy so the chance that the Fed will remove all liquidity within a few months I believe will not be the case.
Tomorrow then I think the market direction may push lower but a rally is probably not too far behind. The rally has to be considered suspect and a temporary reprieve from moving lower but it cannot be trusted without strong indications that support levels will hold and the market direction can shift once more to up.
I have personal doubts that will happen. I believe a rally back will fail and the market direction will resume its move lower. For tomorrow then we could see a flattening out of the market direction although one day after the Fed comments I doubt there will be enough strength for a rally. Instead we will probably see sideways with a bias lower and then a rally perhaps by Friday or early next week.
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