Monday’s market direction was primarily impacted by the continued overbought condition and worries about the Chinese economy which is showing signs of slowing. The on again, off again stats on China’s economy has been an issue for the past several months and sometimes the reports show a weak outlook and other times it shows a resurgence. No matter what comes out of China the important aspect for investing is to look for those trades that can continue to profit portfolios while the market gyrates with every piece of news. Last night I indicated that I saw three near-term issues for the market direction up. The first was the overbought condition of the market itself, the second was the Ukrainian crisis and the third was China. Later this week I am expecting more concern as the Fed chairman Janet Yellen gets ready for the week after.
Overall though the market direction today recovered from the early morning selling and managed to hold onto the support levels. This is assisting at building more support at 1840. Let’s take a look at today’s chart.
S&P Market Direction Intraday for March 10 2014
The one minute S&P chart below shows us that most of the volatility during the day was in the morning. The S&P fell by 10:30 to just above 1867 but when a second attempt to fall lower failed, investors stepped in and started to buy back the market for more trades. This is only natural as the dip this morning in the face of a strong uptrend was an opportunity. Those investors who bought in the late morning did well in the afternoon. You can see in the afternoon that each afternoon low was bought into. This set up a pattern of higher afternoon lows making it easy for traders to hold positions until the close. By the end of the day the market closed almost where the previous day closed. According to the chart pattern, the trend is still up for stocks.
Advance Declines For March 10 2014
Advancing issues again made up 43% of stocks on Monday while declining issues comprised 54% almost matching the trend from Friday. New highs were half of what they were on Friday though with just 106 new highs versus 210 new highs on Friday. Lows were up slight from Friday’s 65 issues to 80 new lows for stocks.
Market Direction Closings For March 10 2014
The S&P closed at 1877.17 down 0.87. The Dow closed at 16,418.68 down 34.04 and wiping out Friday’s small gain. The NASDAQ closed at 4334.45 down just 1.77 after Friday’s drop of 15.90.
The Russell 2000 ETF IWM moved down 40 cents to $119.30..
Market Direction Technical Indicators At The Close of March 10 2014
Let’s review the market direction technical indicators at the close of March 10 2014 on the S&P 500 and view the market direction outlook for March 11 2014.
The 1750 level is holding the S&P up and is now major support for the Dow. If the 1750 should break the uptrend will be in jeopardy. The 1840 level is becoming stronger support and today’s shallow morning dip again assisted in building more support among investors for a move back to 1840. Should there be a stronger dip to 1840, it should slow as many investors will be sitting ready to pick up stocks around the 1840 level.
For Momentum I am using the 10 period. Momentum has been the best indicator over the past two months, replacing MACD as the most accurate indicator. Momentum is still positive but continues to waver between moving lower and moving higher. The bias is to the downside for momentum and needs to be watched.
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 Feb 11. MACD continued to support the positive move higher in the S&P but the overall key aspect to take away from MACD is that the divergence is continuing to narrow as readings slowly fall back. Again, this too needs to be watched.
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 positive and today pushed back up to overbought..
Rate Of Change is set for a 21 period. The rate of change is still bullish but as indicated in my market direction outlook for today, it pulled back still further. The 4.46 reading is strong which leads me to believe there is more upside than downside still ahead for stocks even if it is just some of this week but the rate of change is advising that we could see a change in direction here shortly and again, it could be as soon as this week..
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling that the market direction is down for Tuesday and it is 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 is signaling that the market direction is also down for Tuesday and it too is extremely overbought.
Market Direction Outlook And Strategy for March 11 2014
We had another jump in the VIX Index this morning to $15.28 before the market recovered. You can see in the VIX Index chart below that the VIX Index was falling but today took a bit of a jump. Whether this is anything to be concerned about is perhaps questionable but the Market Direction Technical Indicators are split now with the two stochastic warning that tomorrow will see lower prices and momentum, MACD and rate of change all staying positive but continuing to be pressured lower. The spike up in the Ultimate Oscillator could be the signal for the next move which may be lower for stocks for a day or two.
The outlook for Monday was for weakness in the morning and then a push to try to recover later in the day. That’s pretty well what we saw for Monday but for Tuesday we could be seeing further weakness and a harder time recovering in the afternoon.
For Tuesday I expect a repeat of market weakness in the morning but then a more difficult recovery in the afternoon. The market direction is still up but weakness is entering all the indicators. The extreme overbought signal from the Ultimate Oscillator, coupled with the two stochastic signals for a move lower and the momentum and MACD weakening signals are pointing to stocks having a rougher day on Tuesday.
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