The market direction outlook for Wednesday was sideways with a slight bit of green at the end. This didn’t happen as the market had a hard time digesting the Fed comments. On one hand investors love liquidity but on the other the fact that the economy is still “recovering” after almost 5 years does make an investor worry. Then there were some surprises in the earnings both to the upside and the downside. It truly though is not about earnings but about revenue. Analysts can estimate and adjust lower earnings all they want but it is revenue that is hard to manipulate and it is revenue that is the real measuring stick. Overall revenue continues to disappoint for too many companies. This makes the market direction push higher a far more difficult task.
Market Direction Collapse of 2008
Yesterday I commented about the market direction collapse in 2000. Today I want to look at the collapse of 2008 to see was it truly a surprising event as so many analysts are fond of saying? In fact it was not. The warning signs started in the summer of 2007. The chart below shows the number of times the S&P 500 could not break through to hold the 200 day moving average. In fact the S&P 500 could not hold the 50 day or 100 day moving averages.
By December 2007 the S&P was having trouble staying above the 50, 100 and 200 moving averaged and late in the month of December and into January 2008 the collapse of the moving averages occurred sending the 200 day exponential moving average (EMA) above the 50 and 100 day moving averages and then just as fast the 100 day exponential moving average (EMA) moved above the 50 day simple moving average (SMA). This is textbook market direction trading and with the 200 day exponential moving average (EMA) then trading above both the 100 EMA and 50 SMA, everyone should have known that the direction was confirmed down. So in other words, by December 31 2007 the market direction was down. This was 9 months before Lehman Brothers and 10 months before the October 2008 collapse and 15 months before the March 2009 market direction plunge which ended the bear market.
Many analysts claimed they had been fooled by the market direction recovery of April to May 2008. This is utter nonsense. Studying the chart you can see that at no time did the 200 day exponential moving average (EMA) ever fall back below the 100 and 50 day moving averages. The 200 day EMA is without doubt the simplest and yet most effective measuring tool for any investor to use. The 200 day warned investors months in advance of an impending collapse in stocks. This was not an unknown or unpredicted event. Any analysts who had been investing for years should have seen these signs. Nothing was a surprise and the opportunity to both protect positions and profit from the decline should have been taken by investors. The majority did not and they suffered incredible losses. Then when the market did recover, few investors got back into stocks to rebuild their lost capital. That now seems to be changing with so many investors piling in that Marketwatch estimates more capital has flowed into stocks in 2013 than any year since 2000.
Present Stock Market Direction
I discussed this last night. Here is the market direction. The 200 day EMA is sitting perfect and the last two corrections failed to impact the uptrend. This of course can change and at one point it will change. It is not a matter of staying out of the market until it changes and another bear arrives. It is a matter of investing properly in stocks or ETFs and watching for the warning signs. It is a matter of taking profits and building capital. When the warnings signs appear it is then a matter of protecting capital and setting up trades to profit into any downturn. I am expecting that when the downturn happens, there will be enough signs to advise investors to adjust their portfolios. This has been the case in every market direction correction other than the May 2010 one day crash. Tomorrow for Halloween I will look at the crash of 1987 another supposed “black swan” event.
Market Direction S&P 500 Intraday For Oct 30 2013
The intraday 1 minute chart for the S&P 500 for Wednesday below shows what an interesting day we had. The market was already trending sideways before the Fed announcement. The Feb announcement though hit the market and drop it like a stone. Within a few minutes the market tried to comeback but failed to recover the highs prior to the Fed announcement and then closed back down. The close today was just above the close for Monday. In other words for the week so far we have gone pretty well sideways. One other thing from this morning was the lack of the usual morning trading pattern. In market direction comments earlier this month I mentioned that one of the signals that may tell us when the upturn is over or has stalled will be when the early morning sell-off and then recovery, ends. Today is one such day. Let’s see what tomorrow brings.
Advance Declines For Oct 30 2013
For the second day this week, decliners let advancers, but today decliners were far ahead with 68% of stocks declining and 29% advancing. Meanwhile 764 stocks set new highs and 124 new lows. Yesterday I indicated that the advance decline ratio was beginning to indicate there should be a pull back anytime soon. Today continued to confirm that suspicion.
Market Direction Closing For Oct 30 2013
The S&P 500 closed at 1,763.31 down 8.64 or almost as much as it was up yesterday. The Dow closed at 15,618.76 down 61.59. The NASDAQ closed at 3,930.62 down 21.72. The IWM ETF closed down 1.52 or 1.37% to $109.83 after making a new all-time intraday high yesterday.
Market Direction Technical Indicators At The Close of Oct 30 2013
Let’s review the market direction technical indicators at the close of Oct 30 2013 on the S&P 500 and view the market direction outlook for Oct 31 2013.
For Momentum I am using the 10 period. Momentum is still positive but declining.
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. The signal is still reasonably decent but it is continuing to drop. This is not a good sign for further advances. MACD needs to regain an upward bias.
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 lower today and still in overbought territory.
Rate Of Change is set for a 21 period. The Rate Of Change is lower today.
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 and it is still 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 Thursday is down. It remains extremely overbought as well.
Market Direction Outlook And Strategy for Oct 31 2013
For Halloween the Market Direction Technical Analysis shows the trend up is under intense pressure. The signals are showing more chance to the downside now than the upside. The two stochastic indicators are signaling a lower day tomorrow and into Friday or early the first week of November.
The outlook today is for the bias to now change to the downside. The technical indicators are not negative, none of them, but they are showing weakness. The Fed statement has concerned investors who are now undecided at to what to do next. This is often the catalyst needed for investors to take profits. Any opportunity to take profits or even partial profits is almost always followed by investors.
For Halloween then I am expecting a move lower for the market direction but nothing too scary. Happy Hallowe’en!
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