The market direction outlook for after Christmas was for the traditional Santa Claus rally to commence. Boxing Day volumes were light which is to be expected but often it is the light volume that gets the rally started. Boxing day also normally sees poor market breadth with advancers just ahead of decliners. Let’s take a look at the action for Dec 26 and then view the outlook for Friday Dec 27.
Market Direction S&P 500 Intraday For Dec 26 2013
Today’s market direction opened with short little bounce and then within minutes the first low of the day was in. When that low did not break the market direction went through a stepping climb with each low higher than the previous low. The 4th low later in the day ended up being the final low for Thursday. The market closed with another new record high but just off the intraday high which was the same as Tuesday’s close. This is typical of an overbought market and could signal the start of some weakness tomorrow.
Weekly Initial Unemployment Insurance Claims
The Weekly Initial Unemployment Insurance Claims shows that unemployment benefits fell again last week to the lowest level in a month. The initial claims for unemployment benefits decreased 42,000 to a seasonally adjusted 338,000 according to the Labor Department. The report shows that claims are continuing to show that strength in employment is growing and that is good for the start of 2014. With Weekly Initial Unemployment Insurance Claims now down to levels seen during the start of the last recession, these figures continue to argue against any chance of a severe market correction at present.
Advance Declines For Dec 26 2013
With just 51% of stocks advancing versus 46% declining, the number of new highs though shows that the strength of the market direction remains with the bulls. 365 new highs were made on Thursday versus just 84 new lows. With stocks back to being overbought and Thursday being Boxing Day, volume was light which helped to account for the poor market breadth. But the focus should be with the growing number of new highs which continues to predict higher valuations are ahead in the ongoing rally.
Market Direction Closings For Dec 26 2013
The S&P closed at 1842.02 up 8.70. The Dow closed at 16,479.88 up 122.33. The NASDAQ closed at 4167.18 up 11.76.
The IWM ETF closed at 115.23 up just 1 cents after being up to a new record high of 115.97 during the day. This shows the extent of the overbought nature of stocks at present.
Market Direction Technical Indicators At The Close of Dec 26 2013
Let’s review the market direction technical indicators at the close of Dec 26 2013 on the S&P 500 and view the market direction outlook for Dec 27 2013.
The most important support line in the S&P 500 at this time remains at 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 followed by another band of light support at 1800.
For Momentum I am using the 10 period. Momentum has been the best indicator during this recent correction. Momentum is positive and moved a lot higher.
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 buy signal on Dec 23. That buy signal was strong and it was confirmed today with an even stronger buy signal.
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 overbought for the fifth trading day.
Rate Of Change is set for a 21 period. The Rate Of Change is positive for the fifth day and continues to show strength.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is now turning flat and is extremely overbought. The %D readings have risen dramatically and while %K is still higher and continues to point to more rises in stock prices, the rise in %D indicates that the market may become weak.
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 signals are the same as the Slow Stochastic with an up signal still in place but extremely overbought. The %D readings have risen dramatically as they have with the Slow Stochastic and we could see the market enter a period of weak prices shortly.
Market Direction Outlook And Strategy for Dec 27 2013
With the Christmas vacation behind us, the market is entering the traditional Santa Claus rally period. At present the rally looks strong but the stochastic indicators and the Ultimate Oscillator are showing that this rally is overbought. That often is followed by a flattening out or a sideways movement for a few days. This being the Santa Claus rally period though I am expecting stocks to continue to push higher.
Market breadth was poor today but it was a slow day for stock volume in general being Boxing day. I am looking more at the number of new highs which are continuing to grow. At present then I believe any weakness in stocks which we might see on Friday or on Monday next week will be trading opportunities. The direction is still higher as the Santa Claus rally is now underway.
I am expecting some weakness to be possible at the start tomorrow but a higher close.
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