The market direction outlook for Wednesday was for stocks to move sideways until the Fed announcement. At that point it was obvious to expect stocks would react with a strong move up or down depending on what was said by Chairman Bernanke. The decision to begin tapering may have bothered investors but Bernanke’s comments about interest rates at next to zero into at least 2016 was quickly the focus. He went on to comment about continuing to support the economy to get unemployment down to 6.5% and for inflation to get back to 2%. He seemed unconcerned about inflation and definitely was not concerned about any prospects for deflation. You can tell that after 8 years at the helm he felt that he was leaving the economy and a support mechanism that was in good shape. The main emphasis throughout his news conference was that the Federal Reserve will be there to support the economy. The belief then that the so-called “Bernanke Put” would still be in place, enthused investors into pushing the Dow and the S&P into new records in a terrific rally of 293 intraday points on the Dow and 30 intraday points on the S&P.
Those analysts who assumed the Fed announcement either way was baked into the market were anything but right. These are the announcements that can change trends and they are never “baked in”.
Market Direction S&P 500 Intraday For Dec 18 2013
The market direction action on the S&P today is interesting to review. I have marked the key events from today in the chart below. By understanding key days like today investors can become better at understanding future trends and similar days. Let’s take a look.
A. For much of the morning the mood was sullen as stocks drifted sideways waiting for the afternoon announcement on interest rates and possible Fed tapering.
B. Shortly after 1:00 PM investors nervously began to consider that the Fed might indeed start tapering early. Investors began to sell some stocks pushing the S&P slightly lower.
C. The initial news jumped the S&P for 1 minute.
D. Investors then worried that the tapering announcement would hurt stocks and some sold positions which pushed the S&P down for a brief minute.
E. The interest rate announcement of rates staying at zero through to probably 2016 commenced the rally.
F. Within a few minutes there was a bit of a pull back and then the market continued to climb higher into the close breaking through to a new all time high.
It is interesting how emotions rule investors. Investors became nervous as 2:00 PM moved closer and some decided to take profits. The initial news jumped stocks for a minute and then investors quickly sold stocks lower for another minute and then the mood swung back to enthusiasm. All of this within the space of just a few minutes. The final push shown by point F shows how each little dip was pounced on by investors as a way to “get in cheaper” than the previous spike up. This just kept pushing the S&P higher.
Advance Declines For Dec 18 2013
Advance Declines For Dec 18 201375% of stocks advanced today with most of that volume in the last two hours of trading following the Fed announcement. Only 22% of stocks declined, among them Apple Stock. There were just 192 new highs and 118 new lows. This tells investors that there is room for movement higher for stocks. Just a couple of months ago I was writing about new highs where each day the numbers ranged from 480 stocks to over 700 stocks each day. At 192 stocks setting new highs today, we should see higher numbers shortly.
Market Direction Closings For Dec 18 2013
The S&P closed at 1810.65 up 29.65. The Dow closed at 16,167.97 up 292.71 and solidly back above 16,000. The NASDAQ closed at 4070.06 up 46.38.
The IWM ETF closed at 112.88 up $1.53 for a gain of 1.37%.
Market Direction Technical Indicators At The Close of Dec 18 2013
Let’s review the market direction technical indicators at the close of Dec 18 2013 on the S&P 500 and view the market direction outlook for Dec 19 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. The second support level of 1780 is very light support and was easily broken last week. At present there is no support of any strength about 1780.
For Momentum I am using the 10 period. Momentum has been the best indicator during this recent correction. Momentum is back positive after today’s big rally.
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. MACD took a big jump higher today but is still negative.
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 has jumped from negative yesterday, to being overbought today.
Rate Of Change is set for a 21 period. The Rate Of Change is back positive and indicates that buyers are placing more capital into stocks.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic issued a buy signal yesterday and is indicating that more upside lies ahead for later this week and into next week.
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. Thursday’s sell signal from last week is finished. Today a new buy signal was issued by the Fast Stochastic. The big rally pushed the Fast Stochastic from a sell situation into an overbought condition.
Market Direction Outlook And Strategy for Dec 19 2013
The Santa Claus rally is now almost a certainty. With all the technical indicators now either back positive or pushing higher from low negative readings the market direction movement is higher. We may consolidate on Thursday but the direction is back up.
We should be thanking Ben for his final farewell Christmas gift. While the tapering is not something investors wanted, the Fed move to keep interest rates at pretty well zero into 2016 was a parting gift that should boost stocks into 2014. From there is will be a matter of seeing what revenue figures look like. Even a 5% general increase in revenue next quarter will be enough to push stocks higher.
For now though the market direction outlook for Thursday is for a higher close even if there is some consolidating which would not be surprising considering the huge leap in valuations today. I will be placing the remaining capital back to work Put Selling my favorite stocks.
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