Many Stock markets around the world are sitting at new market direction highs or breaking into highs not seen since before the last bear market collapse. The Canadian Stock Market has a long way to go still before it recovers fully, but many stocks have recovered while others are still down more than 50% from the 08-09 market direction collapse. The world revolves around the United States. No other nation on the planet has so much economic strength. The recovery of stocks to levels beyond 2007 highs is truly amazing and the strength of the recovery this year has caught just about every investor by surprise, both retail and institutional.
The amount of angst over the seemingly endless rise of the markets this year is incredible. Eventually though this terrific rally will stall and a market direction correction will occur. Markets never go up in a straight line. There has been no serious correction this year at all but with the weakest 6 months sitting ahead of us, the market is bound to have difficulty between now and the fall. However that said, I see nothing on the radar that points to a “big drop ahead” yet.
VIX Index and Market Direction
While the market direction seems steady, the VIX Index continues to show that investors are slightly on edge. The VIX Index since mid April has not fallen back below $12.00 and instead it continues to waver around the $13 to $13.50 level instead. I bought more VIX Index calls on Friday to add to those I previously bought a week earlier. Any move above $14 I expect will advise that the market direction will stall and pull back. That is the area I have been watching for signs of the start of some kind of correction.
Market Direction Action – May 20 2013
The 1 minute chart below shows today’s market direction action on the S&P 500. The market direction action is marked on the chart below.
A. The morning low around 9:45 was broken in the afternoon.
B. The morning low ended up being the closing low.
C. The high was lost due to the market being so overbought but also comments by the Fed regarding an easing on the monetary policy. This continual dropping of these kinds of comments hinting at an early exit are I believe designed to try to prevent a bubble in stocks from forming for when the Fed will have to ease up on the liquidity pedal next year, but I doubt there will be any kind of easing this year. Nonetheless it spooked investors enough for some investors to take profits.
D. The close managed to push to just above the morning’s low. Even with the constant dropping of hints of an early easing of liquidity, investors remain convinced that the Fed cannot ease until next year as as usual, investors figure they can “get out” just before things “get worse”.
Market Direction Economic News For The Week
On Wednesday we have Fed Chairman Ben Bernanke’s report.
April Existing Home Sales on Wednesday around 10:00 AM
Weekly Initial Unemployment Insurance Claims; New Home Sales and Weekly Fed Data on Thursday
Durable Goods Orders on Friday.
Home sales will be important as with durable goods orders. Next week is a short week with the Memorial Holiday on Monday May 27.
Market Direction Closing For May 20 2013
The S&P 500 closed at 1,666.29 down just 1.18 points. The Dow closed at 15,335.28 down just 19.12 points and the NASDAQ closed at 3,496.43 down just 2.53 points.
Market Direction Technical Indicators At The Close of May 20 2013
Let’s take a moment now and review the market direction technical indicators at the close of May 20 2013 on the S&P 500 and view the market direction outlook for May 21 2013. 
For Momentum I am using the 10 period. Momentum is positive but again moving sideways today for the second day.
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 April 26 and the signal remains valid. The signal reading is strong and continues to show there is more upside to this rally but the divergence has hardly changed which often I have found indicates a stalling of the market direction up.
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 continuing to stay extremely overbought. This is a good sign for the market direction continuing higher but it is not rising simply staying overbought. After a few days of this, it may be time for the market to pull back a bit and ease up on the overbought state.
Rate Of Change is set for a 21 period. Rate Of Change on Friday signaled a possible change and today that change was perhaps the slight pullback.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is extremely overbought and is signaling that the market direction is down.
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 and is signaling the market direction is down.
Market Direction Outlook And Strategy for May 21 2013
The market direction technical analysis is still signaling there is room to the upside ut not much. When the signals are continuing to exhibit pressure to strong further upside action, normally the market direction enters a period of weakness. Yet much of the weakness today can be attributed to the Fed comments. Still though gold had an incredibly interesting day collapsing once again and then running back up. I bought to close my naked calls for June and sold naked puts into June on Barrick Gold Stock as gold continues to fluctuate. But you have to wonder if this is just another technical bounce as gold is now down to 2 year lows.
I have a lot of capital on the sidelines after May options expired out of the money. A pullback in the market direction now would be very helpful so the contrarian in me tells me it won’t happen. As well with so many analysts looking for a correction in market direction, it is rare when they are always right as well. An interesting outlook to be sure as rarely is the majority right when it comes to stocks.
The question to really ask is how much of a correction could be expected. If on Wednesday Bernanke changes his tune then perhaps a correction can get started but overall none of his objectives of 6.5% unemployment of 2.5% inflation have been met, so I believe it is doubtful anything new will come out on Wednesday.
I believe the market direction is very overbought but Tuesdays this year have been very strong days for the market direction up. I am looking for weakness tomorrow but still nothing major but perhaps 40 to 60 points down in the Dow and then a push back to close either higher or down just slightly similar to today. We could be on the verge of a correction but despite being overbought investors are not selling yet but it won’t take much to get them grabbing their profits when the time comes. I will be Put Selling any declines in my stocks should weakness get overdone but right now the market direction technical indicators are still showing no big drop ahead.
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