Market Direction on Friday saw the S&P come within a few points of its all-time high and then pull back. Market Direction higher remains encouraging but there are some warning signs that indicate the S&P may top here and pull-back for support before attempting a move higher. The Dow failed to close at another new high although it was only down 25 points. In my intraday comments on Friday I indicated that I had hoped the S&P 500 would push up near the close to try to come close or perhaps break to a new all-time high. This did not happen.
Market Direction Action For Friday March 15 2013
The market direction on Friday saw weakness right out of the open. This was anticipated per my market direction outlook for Friday in my comments at the close on Thursday. The S&P then rallied back pushing higher until around 1:00 PM. Unfortunately this high did not break the opening high and instead it returned a lower high. From there the S&P 500 moved lower until it closed at 1560.70 another lower high for the day.
Market Direction Intraday 5 minute chart for March 15 2013 shows the series of lower highs.
This series of lower highs is a bit concerning as it shows the resistance level for the S&P 500 as it is trying to break into new ground. This is not new as the Dow had considerable trouble closing about 14,000 and it took many tries before it finally managed to break through. Unfortunately for the S&P though, it has been more than a month of sideways with a slight bias up movement in market direction. Part of the reason for this bias to the upside has been the lack of “bad” news. As I have mentioned several times before, there has not been any real catalyst for the markets to move to the downside. Traders holding profits have waited for a catalyst to appear.
This Sunday (March 17) evening, the markets may have received it from the news out of Cyprus.
Cyprus, China and Market Direction
Europe is back in the spotlight again Sunday evening with the news that Cyprus may be forced to place a levy on bank deposits. The problem in Cyprus is small in context of what is happening in Europe. But added to Cyprus is concern again of China trying to curb the rise of property prices. Basically when one problem emerges, it always seems that investors can find another one to add to the pot. These two issues look to be the catalyst investors have waited for to commence a pull-back starting Monday.
Market Direction Closings
The S&P 500 closed at 1560.70 down 2.53 points and the Dow closed at 134,514.11 down 25.03 points. The NASDAQ closed at 3249.07 down 9.86 points.
None of these numbers is alarming in any way. The market direction has been up for so long that a breather of some kind is definitely in order.
Market Direction Technical Indicators At The Close of March 15 2013
Let’s take a moment now and review the market direction technical indicators at today’s close on the S&P 500 and view the next trading day’s outlook.
For Momentum I am using the 10 period. Momentum is still positive but after just one up day we are back to a sideways momentum.
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) is still positive and the buy signal remains active, but like Momentum, MACD remains almost unchanged from the previous few days. It would be better to see this signal rising for market direction to move higher.
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 and overbought.
Rate Of Change is set for a 21 period. Rate Of Change is still positive but it too remains unchanged from previous day’s readings.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is overbought to the extreme and is signaling a neutral stance, unsure which market direction the S&P may move.
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 also extremely overbought but it is indicating the market direction now down. While not a big difference in the readings between the K period and D period, the D period is high enough to signal that Monday may see more selling again in the S&P 500.
Market Direction Outlook And Strategy for March 18 2013
The market direction outlook for the next trading day is to see another weak day. There are no clear signals indicating that the market direction will move higher but there are signals that warn the market direction will continue weak on Monday.
Meanwhile the news out of Cyprus and China are probably enough to see selling on Monday which could stretch for more than a day. The market has been up almost since the start of the year with only a short and very shallow pull back.
This pullback in the market direction may be enough to get volatility higher and get put premiums up as some stocks fall back.
How Big A Correction?
I am not expecting a big drop in the S&P 500. 5% would certainly seem in order which would be a drop of 78 points and place the S&P 500 back to just below 1500. A move all the way to 1475 may also be in the cards but I do not see anything beyond that amount.
Cyprus is not a huge problem but traders will look for any excuse to take profits and this presents that opportunity. My strategy changed late last week as I moved to bring more capital into trades. This change in strategy certainly was well-timed to commence just as a possible correction may get underway. I look forward to see what “deals” may be had from here as this possible correction, could set the market direction up for a push higher come April.
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