The market direction on Wednesday was for stocks to move sideways but head lower. In the end though it was President Obama who sunk stocks in the afternoon with his call for tougher sanctions against Russia. Stocks had been waffling up until his speech in Brussels. I was surprised that many analysts didn’t catch that his speech for tougher sanctions could affect the global economic outlook which in turn would affect stocks. Most pointed to all kinds of reasons for the selling but none I read or watched mentioned President Obama’s speech. I found that odd. Let’s take a look at today’s market action.
S&P Market Direction Intraday for March 26 2014
The opening today saw a jump with the announcement of stronger than expected durable goods orders. Then the market set up a pattern of lower highs and lower lows until shortly after lunch. The speech by President Obama calling for tougher sanctions against Russia led to heavier selling in the afternoon. With stocks already moving lower investors jumped in and dumped more shares. The last hour was particularly swift with the market falling steadily. Stocks though still closed above 1850. The close at 1852.56 is showing more support building at the 1850 level. This means if selling continues tomorrow and pushes through 1850, the market will drop to 1840 rapidly. 1840 is better support although 1850 has been building up some significant support. This means that if 1850 breaks, it will be disconcerting to a lot of investors who will turn to selling to get out as they will anticipate the market has further to fall.
Advance Declines For March 26 2014
Declining issues trounced advancers due to the heavier afternoon selling. 65% of stocks declined while 33% advanced. 103 new highs were made and 80 new lows. The market continues to turn out poor numbers for new highs since it turned sideways last week.
It was easy for the markets to give back yesterday’s gains because most of the gains yesterday were caused by comments by Fed President Plosser and not any actual economic data to keep stocks bolstered today.
Market Direction Closings For March 26 2014
The S&P closed at 1852.56 down 13.06. The Dow closed at 16,268.99 down 98.89. The NASDAQ closed at 4234.27 down 60.69 for the largest loss of the 3 major indexes dropping 1.43% on the day..
The Russell 2000 ETF IWM fell 1.92% to $114.69 down $2.24.
Market Direction Technical Indicators At The Close of March 26 2014
Let’s review the market direction technical indicators at the close of March 26 2014 on the S&P 500 and view the market direction outlook for March 27 2014.
The 1750 level has been holding the S&P up and now the 1840 level is the first line of support. Yesterday saw investors test the 1850 level and today the 1855 level. The market sell-off this afternoon pushed the S&P back to 1852 which keeps it just above the 1850 level. 1850 is now light support for the market. If over the next few days the 1850 level can hold, stocks can push higher having support from both 1840 and 1850. The nervousness of investors though continues to hold the indexes from making any solid advances with follow throughs. This can only last a few more days before the market will move lower if it cannot break higher.
For Momentum I am using the 10 period. Momentum has been the best indicator over the past three months, replacing MACD as the most accurate indicator. Momentum has not supported the present rally to a new all-time high and today it is back falling.
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 Feb 13. MACD continues to stay negative and today it moved lower.
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 turned negative yesterday and today it fell dramatically, rapidly moving toward an oversold condition.
Rate Of Change is set for a 21 period. The rate of change is still positive but just barely. Yesterday the Rate Of Change was turning back up signaling buying interest among investors. Today it has moved lower again and is ready to turn negative if the selling continues on Thursday.
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 again for tomorrow.
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 tomorrow will be lower.
Market Direction Outlook And Strategy for March 27 2014
The market direction up continues to be plagued by weakness and the inability to follow through on one day rallies. Yesterday’s catalyst came out of comments from Fed President Plosser. Today’s market pullback was caused by President Obama. A market intent on climbing higher normally overlooks both such comments and just “climbs a wall of worry”. That is not happening here. Instead stocks are hitting the “wall of worry” and investors are nervous. Any amount of good news and they jump back in, worried they are going to miss another run higher in stocks. Any bad news and they jump ship worried they are going to get caught in a big collapse. Fear is everywhere and the VIX Index reflects that with a jump up today of 6.49%.
This is typical of markets that are fairly valued to overvalued. I mentioned this in my article on understanding revenue growth and consumer confidence numbers. Investors will continue to experience drops in stocks and then a run back up until revenue numbers are strong enough to support present valuations. If revenues do improve, volatility will drop and the markets will move solidly higher. If revenue numbers are poor though, look for more volatility to hit stocks along with lower prices and more whipsaws.
This kind of market brings in large profits if traded with strategies that have proven themselves capable in this type of environment. Momentum strategies are ideal in this kind of environment. Put Selling on dips and selling calls on rallies allows an investor to trade both directions even with the markets themselves actually going nowhere.
For tomorrow the technical indicators are heavily weighted to the downside. Only the Rate Of Change is now positive and even it, is only “just” positive. Momentum, MACD, Fast Stochastic, Slow Stochastic and Ultimate Oscillator are all pointing to lower valuations. Technically then the market direction for tomorrow is still down. This means, just like today, I will be trading the market to the downside.
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