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Market Direction Outlook For Feb 12 2014 – Overbought

Feb 11, 2014 | Stock Market Outlook

The market direction outlook for Tuesday was for stocks to remain weak but move higher. The testimony of the new Federal Reserve Chairman Janet Yellen not only calmed investor fears but seemed to indicate that the status quo would still be in effect. In other words, serious trouble would mean serious involvement on the part of the Fed. This means for investors that the so-called Bernanke Put is now the Yellen Put. Little has changed and Tuesday saw the best day this year for stocks.

S&P Market Direction for Feb 11 2014

The S&P had no problems throughout today. The morning saw two very shallow pullbacks and then a continual rise into the late afternoon. There was a small amount of selling into the close but in general the S&P sailed through the 1800 level and closed easily at 1819.75.

market direction intraday Feb 11 2014

Advance Declines For Feb 11 2014

Momentum was strongly to the upside as 76% of stocks were advancing and 22% were declining. Only 90 new highs were made and 74 new lows.  The lack of new highs is a good sign for those investors who like myself enjoy selling puts for income. Many stocks have not climbed back to the pre-correction levels and will have some ways to go before that happens. This is ideal for my Put Selling as the indexes are in an uptrend but many stocks still need more time to move higher. This means put premiums are still reasonably good for many of the stocks I trade in.

Market Direction Closings For Feb 11 2014

The S&P closed at 1819.75 up 19.91. The Dow closed at 15994.77 up 192.98. The NASDAQ closed at 4191.04 up 42.87.

The IWM ETF closed up $0.99 to $112.03

Market Direction Technical Indicators At The Close of Feb 11 2014

Let’s review the market direction technical indicators at the close of Feb 11 2014 on the S&P 500 and view the market direction outlook for Feb 12 2014.

Market Direction Analysis Feb 11 2014

The 1750 level is holding the S&P up. The 1800 was easily broken through today. The ease of the move shows that investors probably over-reacted to the testimony of the new Fed Chairman. I won’t be surprised to see the 1800 level tested later this week, but if investors are drawn back into the market that may not happen.

For Momentum I am using the 10 period. Momentum has been the best indicator over the past two months, replacing MACD as the most accurate indicator. Momentum is continuing to climb.

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 today. We will need confirmation tomorrow, but the buy signal was reasonably good at 1.34.

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 very overbought. This doesn’t mean the market direction will turn down immediately but it does indicate that the move up could stall here for a day or two.

Rate Of Change is set for a 21 period. The rate of change is now neutral being neither negative or positive.

For the Slow Stochastic I use the K period of 14 and D period of 3.  The Slow Stochastic is signaling again today that the market direction is up and it issued a buy last Thursday.

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 indicating that the market direction is up for the fifth day and it also issued a buy signal on Feb 6 which helps to confirm the buy signal from the Slow Stochastic.

Market Direction Outlook And Strategy for Feb 12 2014

As indicated in yesterday’s market direction outlook, Yellen’s comments were enough to move the market direction higher. With all the indicators now supporting higher prices in stocks, the correction would appear to have ended. The S&P is back above the 50 day simple moving average (SMA) at the close. The Dow is nearing the 50 day SMA after cleanly slicing through the 100 day EMA, today.

The overbought nature of the market could see a stalling effect here for a day or two and the market might retest the 1800 level for the S&P, but overall the direction is back to up for now. I am back selling puts and doing a few stocks trades as well. I particularly like the Coca Cola Stock trades I discussed and entered into today.

Any dip back in the market direction will be an opportunity for additional trades. With so many investors missing the last couple of days push higher, any dip will probably be quickly bought so in effect we may not see much of a dip at all. At any rate the 1750 level for the S&P was tested in this correction and held. The market direction up remains intact for now. Wednesday could see some weakness but as explained I would think any dip will result in a flood of investors so I would not expect much of a dip to occur, but we could see some sideways action for a day or two as the market works through the overbought condition. I believe we will see the Dow over the 50 day before the end of the week.

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