Market Direction over the past two days has shown all the signals of a market that is consolidating and preparing for a move higher. Stocks that were down slightly were being picked up carefully by institutional and bigger investors. They buy in lots but do their best not to push up prices. Basically they look for a “floor” and then sit there picking up lots. By doing this they do not disturb the market direction weakness. The accumulation and distribution market timing technical tool is a good tool to use for spotting this. Throughout the past couple of trading days it has shown continual accumulation, but that can change in a heartbeat if these same investors figure the market direction will alter to down.
Market Direction and What To Watch For
The market direction open this morning is a great sign. Now it is a matter of watching the market direction and see if it can hold the gains.
Market Direction 1 Minute Chart Jan 9 2013
The gap open is not as great a sign as is a grinding open when it comes to a longer-term move higher. A market that grinds higher is always much nicer for trading and seems to have more staying power than the market that jumps higher and then jumps again. But the open jump was not retested and the little pullback within a few minutes of the open was immediately bought into and the market pushed higher and another little pullback immediately bought.
These are all good signs that the market direction will move higher over the rest of this week and perhaps into the start of next.
Market Direction and Earnings Announcements
A lot of investors and analysts dismiss the Alcoa Stock effect on the market direction and yet it has been shown time and again that when Alcoa Stock kicks off the earnings quarter with even slightly better earnings than were expected, stocks tend to rally.
Market Direction and Poor Earnings
Just remember that a couple of bad earnings reports can dampen enthusiasm considerably which is what happened last year as the market was rallying, when the likes of IBM with their poor earnings announcement stopped the rally dead in its tracks. The summer rally in 2012 was already having trouble as you can see in the chart below as a number of companies including Fed-Ex warned of lower and/or slower earnings. The market direction then tried to rally twice but put in a triple top in the market. All it took was the likes of IBM to kill that rally.
So make no mistake about it. In the bigger picture, earnings are the engine that ultimate drives market direction higher and can keep it there. So during this earnings season keep an eye out that the market doesn’t get too many disappointing earnings which could drop the market direction from up to down as quickly as it did last summer.
Market Direction Put Selling and Covered Calls
Already analysts have considerably reduced their earnings outlook for stocks. The Christmas Earnings are just about ready to be reported. Anything can disrupt the market direction move higher so it is important to be aware of this when Put Selling or selling covered calls on stocks you want to keep.