The day was about the Fed. The market direction stayed pretty well flat until the Fed Chairman began speaking and indicated clearly that the economy is showing enough signs of improvement that the era of zero interest rates will begin to come to an end as Quantitative Easing will be scaled back until it is no longer needed. This could takes months to years but it will happen as the economy and government return to a more normal environment.
This means interest rates will rise, gold will probably fall back a bit and the dollar may rise higher. How well this will all play out is hard to say right now as Fed Chairman Bernanke explained that this is all experimental and no one knows for certain the outcome. However the Fed Chairman expressed his belief that the Quantitative Easing program has been highly successful and has resulted in the economy improving to the point where Quantitative Easing is no longer needed.
Investors didn’t like what they heard and they pushed the market direction down until it closed down 22.88 points for a loss of 1.39%. Overall though when you look at the chart below you can see that basically the market gave back the gains from the past 2 days rally and sits back above the 50 period exponential moving average (EMA).
Market Direction Closing For June 19 2013
The S&P 500 closed at 1,628.93 down 22.88. The Dow closed at 15,112.19 down 206.04. The NASDAQ closed at 3,443.20 down 38.98.
VIX Index Movements
Surprisingly the VIX Index had fallen back below $16 earlier in the day and in the end closed up just .03 points at $16.64 still far below the higher values from last week.
Market Direction Technical Indicators At The Close of June 18 2013
Let’s review the market direction technical indicators at the close of June 19 2013 on the S&P 500 and view the market direction outlook for June 20 2013.
For Momentum I am using the 10 period. Yesterday Momentum turned positive and continued to stay positive despite the selling into the close.
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 sell signal on May 24. The sell signal is still valid and the divergence which was narrowing yesterday is wider today due to the selling following Bernanke’s talk to reporters.
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 still positive today.
Rate Of Change is set for a 21 period. The rate of change is negative for the seventh day and it back moving lower indicating a growing lack of conviction among buyers.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is still signaling that the market direction is up.
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 indicating that the market direction is lower.
Market Direction Outlook And Strategy for June 20 2013
The Market Direction Technical Indicators are evenly split. Three indicators are positive and three are negative. According to the technical outlook then tomorrow is a toss-up. However if we look at the technical indicators more closely we can see that the Fast Stochastic is being pushed back into oversold territory which could be a positive for stocks. As well the one indicator that is positive, momentum, did not fall today but instead stayed almost flat which is fairly good considering the heavy selling after 2:30 PM.
My outlook based on the above charting is for the market direction to remain weak tomorrow and the Dow will probably fall back below 15000. We could see the market attempt a rally but I think the Fed comments are enough to spook investors for at least another day. After that I am sure investors will realize that the scaling back of Quantitative Easing will not happen overnight.
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