The market direction outlook for Thursday was for the downtrend to continue and I expected the S&P to close below 1780. The S&P closed at 1775.50 which does break the uptrend that was in place from mid-November. If we look at the chart below we can see though that the 1775 level for the S&P actually has a lot of significance. Through the end of October and into the middle of November that valuation acted as resistance for the push higher in the S&P. There were 6 attempts to push through 1775 which I have shown with blue arrows. Once broken through, the S&P 500 retested 1775 twice and today tested it for a third time. The question for tomorrow then is whether the S&P will bounce off the 1775 level or break through. If it breaks through it is a short fall down to 1750.
Market Direction S&P 500 Intraday For Dec 12 2013
The market direction today was interesting. The one minute chart below shows the action. The morning saw a quick high at the outset and then more selling which pushed through to the lunch hour and saw the S&P fall to 1772.28. This was below the point previously mentioned above of 1775 and the market seemed to bounce off and rose steadily almost making a full recovery. But the morning high was not quite reached and that seemed to bring back the sellers. The push back hard and sold the S&P all the way back to 1775.50. 
Advance Declines For Dec 12 2013
The damage being done to the momentum of the market is not as poor as yesterday but the number of new lows is striking. The declining issues had the upper hand with 57% declining while 40% of stocks advanced. The number of new lows though rose to 252 while new highs were just 37.
Market Direction Closings For Dec 12 2013
While selling still dominated the S&P managed to keep losses to just 0.38% closing at 1775.50 down 6.72, a lot less than yesterday’s 20.40 plunge.
The Dow was the worst performer down 104.10 points for a loss of 0.66% and combined with yesterday’s loss now has the Dow down 233.70 points. The NASDAQ was the strongest index down just 5.41 points for a minimal loss of 0.14%.
The IWM ETF had a somewhat erratic day but at the end managed to bounce up in the last couple of minutes to close at 109.84 for a gain of 0.24 or 0.22%.
Market Direction Technical Indicators At The Close of Dec 12 2013
Let’s review the market direction technical indicators at the close of Dec 12 2013 on the S&P 500 and view the market direction outlook for Dec 13 2013.
The most important support line in the S&P 500 at this time in the ongoing rally is still 1750. That support line is holding the market direction up at present and that has not changed. 1780 however is definitely broken and now becomes resistance.
For Momentum I am using the 10 period. Momentum has been the best indicator during this recent correction. Today momentum continued negative and still appears to be building momentum to the downside.
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 Friday Nov 29 when MACD was slightly negative. The move today in MACD is still stronger to the downside with a reading of negative 4.06.
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 negative but trending more sideways than down which may indicate that sellers are tiring at this point.
Rate Of Change is set for a 21 period. The Rate Of Change is now slightly negative.
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. Yesterday saw a sell signal and today that signal was confirmed.
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. Yesterday the Fast Stochastic issued a sell signal as well and it was confirmed by today’s move lower. The Fast Stochastic is now oversold which could lead to a bounce, even if only slightly.
Market Direction Outlook And Strategy for Dec 13 2013
The market direction technical indicators are all pointing lower for stocks. MACD is continuing to give us stronger negative readings and momentum continues to show more strength building to the downside.
At this point in the downturn the market direction lower is showing signs of stalling here as investors weigh whether to unload more stocks. Meanwhile though the last two days has started to create an oversold condition which could see a bounce back tomorrow for stocks.
At this point my strategy has not changed. I am continuing with selling put contracts on big cap stocks but in small lot sizes. For example two days ago I sold 3 puts on McDonalds Stock for January 18 expiry at the $92.50 strike for .57 cents when I would normally have sold 5. Today I sold 2 more for the same put strike but for .85 cents. By slowly taking positions and keeping capital back I am able to continue to generate income but also take advantage of the continuing decline which is driving up put premiums.
For tomorrow then, the market direction technical indicators are advising that we will see another down day. My personal observation is that investors may be a bit tired of selling here and we could see a bounce back tomorrow. Part of that bounce could also be caused by breaking the 1780 level of support and closing at 1775. Investors may want to test to see if 1775 can hold here and the market move back up.
So we have a split decision for tomorrow. The technical indicators point to a further down day and my personal view is for a down day but the chance for a bounce.
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