The market direction outlook for today was for stocks to begin to stall as the extreme overbought nature of the market at present makes a bigger impact. Indeed even with the market direction sliding slightly today, the number of new highs was an astounding 717 versus 117 new lows. Following the debt ceiling short-term resolution investors piled heavily into stocks and yesterday’s employment numbers rallied more investors confident that the Fed will not and cannot scale back the amount of stimulus presently being pumped into the markets. As explained in my market direction outlook last night, this rally showed incredible strength with a number of indicators flashing overbought warnings for more than a couple of days. Momentum alone was reading at heights not seen since the fall of 2011. Today’s pull back then is a chance for the markets to try to consolidate the gains made before attempting another rally higher.
Market Direction Catalyst To The Downside
Almost always the overbought nature of the market needs a catalyst to push investors back from continuing to buy. Two catalysts to the downside today were rumors that the People’s Bank of China may begin to tighten monetary policy after reports that in some cities, housing has jumped over 20% in a year. Commodity prices were sharply lower on the speculation. Meanwhile Caterpillar Stock which has been on an upward trajectory for a number of days released an earnings report that showed declining sales and laid out a projection of continuing softness in their market. Total sales and revenue fell to $13.42 billion from $16.45 billion. Earnings were $1.45 a share far below analysts estimates of $1.68 a share. Caterpillar stock is a stock I trade in and I will post an article this evening.
Investors used these catalysts as reasons to take profits today.
Boeing Raises Its Outlook
At the same time Boeing reported third-quarter profits up 12 percent to $1.2 billion. The $1.51 a share was still below analysts expected earnings of $1.55 a share but Boeing raised their outlook for the year and shares rose $6.54 to $129.02. Boeing is not a stock I trade in.
Market Direction S&P 500 Intraday For Oct 23 2013
The intraday 1 minute chart for the S&P 500 below shows the consolidation happening in the market. In the morning the market sold lower and again late morning the market had bottomed and reversed back to up. This pattern has been a staple of this rally for days and continues to make trading the Pennies Strategy easy. Once the rally pushed the market above half way back up, the market direction changed to sideways and the market stayed flat into the close.
Advance Declines For Oct 23 2013
The advance – decline ratio continues to point to an overheated market but today we got to see some consolidating. Advancing issues were 44% versus 53% of all issues declining. Despite this though the market made 717 new highs versus 117 new lows. Too many stocks are setting new highs which is normally followed by a further day of consolidation.
Market Direction Closing For Oct 23 2013
The S&P 500 closed at 1,746.38 down 8.29. The Dow closed at 15,413.33 down 54.33. The NASDAQ closed at 3,907.07 down 22.49. The IWM ETF closed down just 0.37 to $110.39. All of these indices point to consolidation at this time.
Market Direction Technical Indicators At The Close of Oct 23 2013
Let’s review the market direction technical indicators at the close of Oct 23 2013 on the S&P 500 and view the market direction outlook for Oct 24 2013.
For Momentum I am using the 10 period. Momentum continued with very high readings even with the slight pullback today. Momentum is sitting at 105.43 which is an extraordinary reading over the past 3 years.
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 Oct 14 and today that signal turned slightly sideways again reflecting consolidation.
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 shows heavily overbought but today’s action did lower it.
Rate Of Change is set for a 21 period. The Rate Of Change continued positive today and simply turned sideways reflecting no real concern that investors are bailing. Instead it reflects investors picking up stocks carefully on today’s dip.
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. 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 for tomorrow is down and it too is extremely overbought.
Market Direction Outlook And Strategy for Oct 24 2013
The technical indicators and advance – decline ratio all point to consolidation from an overbought market. The question is how long could this last. In the past year many of these consolidation periods lasted only two or three days. At this point all the indicators are reflecting no concern. That said, the slow stochastic could be the one to watch as it attempts to predict market direction out beyond a single day. With its negative reading being stronger today than yesterday we could possibly see weakness right into the end of the week.
Remember too that the Weekly Initial Unemployment Insurance Claims has been back above 350,000 which historically signals turmoil within the market direction. So far this is exactly what we have seen. Tomorrow we get the next Weekly Initial Unemployment Insurance Claims. it should be interesting to see what signals it will generate.
Thursday’s Outlook
There were a number of possible trades today but I was working on completing a larger article on TPX stock for an investor. I updated my Family Dollar Stock trades for 2013 and I did one Trading For Pennies Strategy trade once more in the morning off the morning low. This is definitely a pattern which has created continual profits every day. How long this morning pattern can last is not known of course but I am hoping for a while longer yet.
For Thursday I am looking for more consolidation to continue. Everything points to the market perhaps staying this way into the weekend but right now I can only judge tomorrow and all the signals point to another sideways day.
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