Market Direction Intraday Comments for March 14 2013 – 2007 VS 2013

Market Direction intraday remains bullish with investors still cautious but selectively buying. The S&P 500 pushed up to $1562.14 before pulling back, but the path certainly seems clear. The all time intraday high in the S&P 500 was $1576.09 in 2007 so the S&P 500 is almost there. The continual climb is still being talked down by analysts and pundits and that’s a very good thing. Meanwhile those of us who are following the approach of “stay cautious but stay invested” are reaping some very nice gains. This morning I sold the Caterpillar Stock April 20 expiry $85 puts for $1.05 and the Bank of Nova Scotia Stock April 20 expiry $58.50 puts on the TSX for .65 and Nucor Stock April 20 expiry $43 put strike for .65 cents. The key remains looking for dips in your watch list and taking advantage of weakness. Just remember there is no fast rule that says you must hold it until options expiry. Look for opportunities to close early for at least 75% of the gain.

Market Direction Intraday

The S&P 5 minute market direction chart for March 14 2013 is below. You can see the jump in the morning at Point A. Then the usual pullback to see if there is support which I have marked as Point B.

Point C shows the higher low as the market rallied a bit off point A and the once more looked for support.

Point D is what I am presently watching with regards to market direction. The S&P needs to continue to show that the higher lows are going to hold in order for investors to keep buying and pushing stocks higher. Presently point D is holding. 1576 is well within reach and I would expect a bit more consolidation at that point buy overall I believe any resistance at the 1576 level will be minor.

Market Direction Intraday Mar 14 2013

Market Direction Comparison 2007 versus 2013

In my market direction outlook last night I commented how my instincts told me that the market direction would try to push higher. That comment was derived from the chart below which is typical of a bull market.

Back in early January we had a flat period which I have marked A followed by an up day which I have marked at point B. Then at point C more flat days where analysts wondered if the market direction would turn down. Instead it was followed by another up day at point D.

Now move to March and you can see the same pattern which I have marked at point E, which is now being followed by today, Point F which is an up day. This is extremely bullish but also very typical of a bull market in which strong resistance lines have been broken.

Market Direction January to March 2013

Market Direction 2007

If you compare that activity to the market direction top in 2007 you can see the striking differences. In 2007 every push higher was met with a wave of selling. You can see where I have placed the red arrows how the market was warning that a top was being formed. For one thing earnings were dropping off but investors were still buying but many traders were selling after each little rise. I remember reading many analysts who pointed out that the pattern you see below is indicative of a strong bull market. They are wrong.

You can see in the 2013 chart above that sellers are not selling. The 2007 chart below shows the formation of a top. The above shows no top yet. There are no distinct patterns of a top in the 2013 chart.

The 2007 chart below was my signal to move to the sidelines and raise cash. After July the market still came roaring back in the fall of 2007 making a brand new high and again analysts called it the start of a new bull market. Again they were wrong as it was actually confirming the bearish pattern you see below.

Market Direction top in 2007

Market Direction Intraday Comments Summary

The strategy I am using then remains to stay cautious but stay invested. This was not the strategy I used in 2007 as I saw the above pattern developing. Instead my investing in 2007 was purely with far out of the money puts and the Spy Put Options which as you can see in the 2007 chart, were highly profitable. I raised cash continually and took smaller and smaller positions as the market moved higher.

This is not the pattern we see for 2013 at present. Until the present pattern changes and begins to reflect the rise and fall of the market direction as seen back in 2007, I will be remaining with my present strategy and continue to look for dips in my favorite stocks and continue to compound my portfolio. Remember, watch for the above 2007 pattern to appear in the market direction to signal when to start becoming defensive.

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  • Joe Cagara

    Hi Teddi, 

    When you are watching for a market top do you only consider the price action of the S&P500 or are you also looking at the behavior of some of the other asset classes – i.e bonds (.USB; /bond yields (.TNX), commodities (.CRB), US dollar (.USD) etc. and how they correlate with the S&P500?

    Thanks

  • Nate

    What do you think about the difference in volume though? The volume has been so low on this push up that it also seems to be indicating a top? There was more sell-offs because there were so many high volume buying days. The volume avg about 30-40% higher than it is now. Just curious your thoughts.

  • Normally large sell-off are on high volume. Bull markets thrive on low volume.
    Teddi

  • Not really. I look at the movement of the S&P 500 itself. Normally that is the best indicator for me. Per the charts in the article, I look for the constant sell-off and climb back and for volume to pick up. Then when the pullback starts I watch for the market rebound to try to recapture the top. When that fails, you know the market direction will move lower.