The zig-zag in stocks today, while caused by the bond market in general, is still symptomatic of the problem in the overall stock market. Investors remain wary of the market and the quick plunge of more than 180 points in the Dow in the morning and then the recovery into the afternoon are just one more signal to investors to remain cautious and careful. One of the best ways to do that is to keep a bit more cash than normal out of stocks and on the sidelines ready for opportunities should they develop.
The outlook for today was for stocks to be weak but to see stocks pick up by midday. This did occur but from a much deeper plunge than I was expecting. The close though was not positive although for a brief period it looked like stocks just might close slightly positive.
Advance Decline Numbers for May 12 2015
Volume picked up by about 250 million shares to 3.16 billion, but, as has been the case for weeks, volume was still below average.
56% of all volume was to the downside. There were 68 new lows and just 34 new highs. The day belonged to the bears despite the sharp rebound off the morning lows.
Market Direction Closings For May 12 2015
The S&P closed at 2,099.12 down 6.21. The Dow closed at 18,068.23 down 36.94. The NASDAQ closed at 4976.19 down 17.38.
Market Direction Technical Indicators At The Close of May 12 2015
Let’s review the market direction technical indicators at the close of May 12 2015 on the S&P 500 and view the market direction outlook for May 13 2015.
Market Direction Technical Analysis for May 12 2015
Stock Chart Comments:
The S&P fell below the 50 day moving average in the morning on low volume. The moment the S&P hit the 50 day moving average buyers stepped in and the S&P bounced back. By the end of the day the S&P had closed well above the morning lows. This kind of activity shows investor nervousness. It is also often followed by a positive day as many investors are drawn into the market on the back of the recovery from the lows. It is interesting how the S&P closed again at the 2100 level. While many investors do not believe in technical or fundamental investing, it is surprising how often specific support and resistance levels are continually reached. 2100 has been one such level. Just as 18000 has been a barrier for the Dow and 5000 for the NASDAQ, the S&P has had repeated problems holding above 2100.
Support and Resistance Levels:
These are the present support and resistance levels.
2100 is very light support. Stocks will have to stay above it to change it back to solid support and convince investors that the market has staying power and will push well beyond 2100. That still does not appear to be the case.
2075 is light support. Below that is 2050 which is also light support. Stronger support is at 2000 which has repeatedly held the market up throughout each pullback in January and February.
Weak support is at 1970. Stronger support is at 1956.
1870 and 1840 are both levels with strong enough support to delay the market falling and should see a sideways action attempt while investors decide whether to sell or buy.
The other two support levels are 1775 and 1750. I have explained that these two are critical support for the present bull market. While 1775 is important it is 1750 that is the bottom line.
A break of 1750 would mark a severe correction from the most recent high. This would be the biggest correction since April 2012. A pull-back of that size would definitely stun investors and bring to question whether the bull market is finished.
Momentum: For Momentum I am using the 10 period. Momentum is negative and moving slightly lower.
MACD Histogram: 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 confirmed sell signal on May 5. That signal has been weak since it was confirmed. Today saw another weak negative close in MACD.
Ultimate Oscillator: 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 now positive and moving higher on the back of the bounce from the market’s morning lows..
Rate of Change: Rate Of Change is set for a 21 period. The rate of change has signaled a change to the market direction for days now. It would appear that the change in direction may simply be a sideways signal.
Slow Stochastic: For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic tries to predict the market direction further out than just one day. The Slow Stochastic is signaling up for stocks.
Fast Stochastic: 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 signaling up for stocks as well although it took quite a hit during the day and is close to a sell signal on the market by the close. That sell signal could still be generated on Wednesday.
Market Direction Outlook for May 13 2015
Setting aside my cautionary stance, the major bounce from the market morning low could be a signal that more upside is ahead for Wednesday. Often a reversal such as we saw on Tuesday late morning can draw in a lot of investors who believe the market will push strongly ahead following such a reversal. For Wednesday then I think we will see a positive close, however nothing has actually changed. The drop in the morning market combined with Monday’s decline, wiped out all the gains from the big rally on Friday. The ease and speed with which the market fell in the early going is a signal that there is not a lot of conviction from investors. They are willing to get out at a moment’s notice.
I will be extra careful over the next few days. Wednesday I think will see stocks close higher on the remaining strength from today’s reversal. After that though the market still looks like it wants to pullback. My outlook then is “Up, but staying cautious.”
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