FED Comments Plunges Market Direction – What’s Next

Fed’s Plosser slamming QE3 in the early afternoon really plunged the stock market direction. His comments about QE3 shows the discord within the Federal Reserve. While it is pointless for me to worry about the Fed and what they might do or say next, today’s dramatic stock market plunge shows how jittery investors remain. Most recall 2008 to 2009 market crash as if it was a fresh wound but while his comments turned investors right around, the stock markets have had a tough time climbing and so with an overbought condition still be worked out, poor earnings news, FedEx warnings, Intel earnings downgrades and even questions about how Apple is reporting its sales figures investors decided to sell.

Market Direction Damage

So how much damage was done today? Let’s take a look at the market timing technical indicators to see what they can tell us about market direction.

Momentum is still positive but falling rapidly now.

MACD Histogram has turned negative.

The Ultimate Oscillator is also negative.

Rate of Change surprisingly is positive but close to turning negative. if the market direction tomorrow is down this market timing indicator will be negative as well.

The Slow Stochastic is negative and as it looks out longer than a day or two, I can assume that the rest of the week will be weak as well.

The Fast Stochastic though is the market timing signal to watch at the close today. It is downright bearish which means more selling tomorrow and/or Thursday.


Market Direction Technical Indicators for Sept 25 2012

With Market Direction predicted as negative through the consensus of the majority of market timing tools and keeping in mind what the fast stochastic is signaling, tomorrow could be a great Spy Put Options day. Today my SPY PUT options trade was good. However the rest of this week could prove interesting for buying those spy puts.

SPY PUT Trade For Market Direction Downturn

Today the SPY PUT trade was straight forward once again. Instead of the SPX (S&P 500) chart I will show the SPY Chart. I waited for the S&P 500 to show a topping out action. That happened around 11:00 AM. I waited for the topping action to be confirmed by the S&P 500 not recovering. I then bought SPY PUTS but I did not sell them on the first, second or third oversold indicator from the SPY.

I waited for the S&P 500 to break Monday’s close. On the SPY that was 145.59. Once that broke investors could have bought SPY Puts for a ride to the finish. I sold my SPY PUTS just before the market closed as I thought there might be a bounce. No bounce at the close usually means more selling tomorrow.

SPY PUT Trade for Sept 25 2012

For Wednesday Look For This Setup

For Wednesday Sept 26 I will be looking for the stock market to bounce back at the open and then put in place a topping action again. I will mark today’s close on the chart. I draw a line at 1441.59 and then wait for that topping action before getting ready to buy my spy puts. I will be looking for an overbought signal early in the morning and then I will be waiting for the topping action and the market to slip below today’s close. If I see it, I will be buying my SPY PUTS for the day. Tomorrow could be a good day for SPY PUT profits.

Market Direction Outlook For Wednesday Sept 26 2012

The market direction is down as confirmed by the market timing consensus, but in particular the fast stochastic had a very strong reaction to today’s selling and is indicating that there is more selling to come. Again I am not looking for a panic or any kind of surprising plunge. But the market has spent a lot of time hanging on as I indicated in my market direction outlook yesterday.

Often when the stock market trends sideways it begins to tread water so to speak and often the path of least resistance for market direction is down. That move lower should provide for some profits and some better Put Selling opportunities. How deep the pullback might be is hard to judge yet, but I don’t think it will take very long for everyone to find out how low market direction may go.

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  • Anony

    Hello Teddi,
    What are the fast stochastic settings that you use? For example I tried using 15 and 30 min intervals on an intraday chart and I get a significantly lower reading than yours. Less than 2 in fact. Tried a 5 day chart and about the same result.

  • Hi
    Thanks for your question.
    The above was from the SPY and not the S&P 500 (SPX). Use the 5 minute charting and set up the Fast Stochastic for K period for 20 and D period for 5.
    Make changes as you see fit depending on what you want to accomplish with the fast stochastic.