My market direction outlook for Friday was for investors to do some selling in the morning and then attempt to push higher. I did not expect the strength of the push back in market direction to be as strong as it was despite the oversold condition. For one thing, the S&P 500 is not that oversold at present. Nonetheless investors obviously felt that at some point politicians will come to their senses, increase the debt ceiling and the world will continue as before. They jumped into a variety of stocks and the advance decline shows just how strong Friday was. But was it a one day reaction? Let’s take a look at Friday and see what we see for Monday.
Market Direction Intraday Chart for Oct 4 2013
In the one minute intraday chart below I have marked the key points for Friday. At the outset (POINT A) there was some muted selling but nothing that pushed the market direction much below 1678. When that selling didn’t develop into much, investors jumped in and pushed the market back above 1680 to point B around 10:30. Another slight pullback lasted into the noon hour and then the market pushed higher again to Point C by 12:30. From there another higher high was attempted around 3:00 PM (Point D) and when that failed to hold investors took profits heading into the weekend. The close (Point E) though saw the market hang on the second high at point C. That may seem bullish but overall much of the push back seemed more technical in nature.
DOW Index Still Below 100 Day EMA
Meanwhile the Dow during the day tried to recover the 100 day exponential moving average (EMA) but was unsuccessful. Still it managed to close just below this important technical indicator. The Dow has been of concern since setting a new all time high on Sept 19 2013. That high has not been confirmed and many analysts are warning that the Dow looks set to put in a double top which for them is ominous. That said, most this drop has been caused by political issues over which stocks have no say and no control. But if this matter should continue into next week, I will not be surprised to see the Dow flirting with the 200 day moving average. This needs to be watched. While over the past 5 years the NASDAQ has led this market direction back up, it has been the Dow over that same period that has always warned when the market direction is on the verge of a pullback.
Advance Declines For Oct 4 2013
Advancing issues rose 64% on Friday versus 33% for decliners. New highs were 146 versus 91 new lows.
Market Direction Closing For Oct 4 2013
The S&P 500 closed at 1,690.50 up 11.84 and back above 1680. The Dow closed at 15,072.58 up 76.10 and back above 15,000. The NASDAQ closed at 3,807.75 up 33.41 and still flirting with trying to set yet another new high. IWM ETF (Russell 2000) also had a good day closing up 0.67% and trying hard to cling to its all time new high set just a few trading days earlier.
Market Direction Technical Indicators At The Close of Oct 4 2013
Let’s review the market direction technical indicators at the close of Oct 4 2013 on the S&P 500 and view the market direction outlook for Oct 7 2013.
For Momentum I am using the 10 period. Momentum is continuing to stay negative although Friday helped to pull it back up.
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 the S&P 500 on Sep 30 which was confirmed Oct 1. The sell signal flattened out today but gave no indications that the selling will not resume.
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 is pushing slightly higher into positive territory.
Rate Of Change is set for a 21 period. The rate of change has dropped dramatically over the past couple of days indicating that interest by investors in securing more stock and risking additional capital is stalling here. It is now negative to neutral.
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 to neutral. It is oversold.
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 up. It too is oversold.
Market Direction Outlook And Strategy for Oct 7 2013
Political stalemate continues over the debt ceiling and on Sunday night while completing this market direction outlook the futures were negative to the point of wiping out all of Friday’s gains. That can easily change overnight but the Republicans seem determined not to present a so-called clean bill to the house that basically addresses just the debt ceiling issue. It has become common practice over the past decade to include a variety of other bills in an effort to get through congress some bills that would most likely fail on their own. The inability of politicians to work together has Americans deeply concerned. Meanwhile the latest budget deficit from the Obama administration is reduced to 4.3 percent of gross domestic product, down from 10.1 percent in February 2010 and the narrowest since November 2008. But neither side want to be the first to give an inch and therefore the nation continues to be held hostage by political wrangling.
The market direction technical indicators do look better on Friday after the close but nowhere do they indicate that the selling is over. Instead they show more a reaction from investors to the possibility that the debt ceiling may end soon. The technical indicators continue to show weakness in the market direction and until the debt ceiling is taken care of that is not likely to change.
For myself I am picking Put Selling positions that are in the big cap stocks I follow. Where I would take 10 more more put positions I am doing 5. I am only doing 10 positions in stocks that have held up very well and even moved higher during this period of turmoil. I have rescue strategies in place for all my trades and am prepared for any kind of severe change in the market direction.
The market direction portfolio has been stopped out again but through using a very tight stop I am still picking up small earnings while waiting for the politics to end. For Monday it would appear more weakness will once more start the day. I will be watching the early morning for the usual dip and if it is there I will be taking advantage of it. I am not expecting big changes here but the longer this fiasco is allowed to run, the more damage it can cause and the more likelihood of a stronger pull back continues to develop. At the moment I am unconcerned, but that can change quickly as the calendar approached Oct 17 should the political fighting continue without a resolution to the debt ceiling.
Keep an eye on 1680. If it breaks easily on Monday or Tuesday I will be expecting the market direction to easily move to 1672 to 1670 which was the low on October 3. As I explained on that day, it is rare for the market direction to dip that low below support and not retest it within a few days. Right now the technical indicators say that Friday saw a nice bounce, but the outlook is still lower for market direction.
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