The market direction outlook for Wednesday was for stocks to move higher even with Twitter’s collapse. Part of the reason for investors deciding to push stocks higher came from the Federal Reserve’s two-day interest rate meeting where data showed economic growth for the first quarter fell short of expectations. GDP grew by just 0.1 percent which for many investors meant that the Fed won’t be raising interest rates any time soon. Still though the Fed did decide to continue the tapering of the bond buying program. Let’s look at today’s action.
Market Direction S&P Intraday Chart April 30 2014
Below is the one minute chart for the S&P intraday. The morning saw a fairly lackluster opening and a morning low was made around 10:00 AM. The low was down at 1872.69 which then resulted in investors buying into the market and pushing stocks to a morning high just shy of 1882. In the past few days the morning high has often been the high for the entire day, but today was different. The market pulled back slight and then wandered with a slight bias to the upside as investors waited on the Fed minutes. When the news reached investors there was a sharp reaction down, then up and then down again but finally investors decided that the lack of GDP growth was good for stocks since the belief remains that interest rates won’t move higher with anemic growth. Sounds strange but this has been the “story” for investors for a long time. This resulted in investors pushing stocks above the morning high and indeed the S&P closed above the morning high which is a good sign for higher valuations still to come.
Advance Declines For April 30 2014
Advancing issues made up 65% of the volume today and declining issues made up 32%. Meanwhile new highs reached 120 which was lower than yesterday and new lows were up slightly at 89. While the market is moving higher the number of new highs is not overly encouraging and should be watched for any change to lower numbers.
Market Direction Closings For April 30 2014
The S&P closed at 1883.95 up 5.62 and well within striking distance of another all-time high for the S&P. The Dow closed at 16,580.84 up 45.47 and within striking distance of a new high. The NASDAQ however closed at 4114.56 up just 11.01 but just below the 100 day EMA and ready to break through. The Russell 2000 ETF IWM rose 74 cents to close at $111.98.
Market Direction Technical Indicators At The Close of April 30 2014
Let’s review the market direction technical indicators at the close of April 30 2014 on the S&P 500 and view the market direction outlook for May 1 2014.
The 1750 level continues to hold the S&P up since the correction ended in early February. All the levels of any support above 1800 have been broken and will need time to heal and create support again. Any downturn in stocks will quickly see these levels above 1800 break. The only level above 1800 that has any support worth mentioning is the 1840 level. There is still no change to this. I am still expecting that at some point in the spring to summer period stocks will correct down to the 1750 level.
For Momentum I am using the 10 period. Momentum has been the best indicator over the past four months, replacing MACD as the most accurate indicator. Momentum is still positive and is still more sideways than up.
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 April 22 and today MACD is still positive and starting to climb again..
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 continuing to provide positive readings and is moving back higher.
Rate Of Change is set for a 21 period. The rate of change is now negative indicating a lack of fresh capital flowing into stocks.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling market direction is up for tomorrow and it is now extremely overbought.
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 continues to signal that tomorrow will see stocks higher and it too is overbought.
Market Direction Outlook And Strategy for May 1 2014
With April now behind investors, we look out to May with a bit of concern. The market direction has tried repeatedly to break through convincingly to new highs and stay higher but failed. The failure rate is showing in the rate of change which is continuing to show declining interest in placing new capital into stocks. Meanwhile May is the start of the poorest 6 months of the year. Over the past years from 1950 to 2013, the S&P has been up 35 times and down 28. While May is a poor month, the worst month is still September which is part of the reason why the worst six months of the year is heavily impacted by declines in September.
The May numbers though are not overly bad but the historic of the month does show that stocks tend to not advance by much even with they do advance. In the period from 1985 to 1997 May actually was one of the best months for stocks with an average gain of 3.3% for the month. Therefore it is not a foregone conclusion that May will see a large retrenchment of stocks.
For tomorrow, the market direction technical indicators are 5 to 1 that stocks will move higher. Only the rate of change is warning investors to be careful. All the other indicators are pointing to higher prices still to come for stocks.
I am not changing my strategy at this point except I am taking on smaller positions and risking slightly less capital as the market tries to decide if it will move higher. For tomorrow I am expecting stocks to once again face weakness, but to close positive. The market direction bias remains up for stocks.
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