Market direction today was unable to retain enough support from investors to hold the 20 period exponential moving average (EMA). I can go over all the reasons for the decline today but I am sure you have read them already elsewhere. Investors remain concerned about everything from the Fed’s ability to keep the economy growing to scaling back on QE to Japan, Europe and Asia. In other words, just a week ago things looked rosy and now they don’t. That’s how easy and quickly it is for investors to change their mood. Instead of covering again the various reasons for the continued decline let’s look at the moving averages to see what damage today did.
Market Direction for June 5 2013
The S&P 500 is continuing to exhibit the pattern of lower highs and lower lows which are indicative of a market direction under pressure. The 20 period held up for 3 days and then broke today. As explained in yesterday’s market direction comments, the chance of the 20 period holding was slim. The 50 period may have better luck but it was reached quickly, in just one day and the market direction closed right on it.
Market Direction Closing For June 5 2013
The S&P 500 closed at 1,608.90 down 22.48 points. The Dow closed at 14,960.59 down 216.95 points. The NASDAQ closed at 3,401.48 down 43.78 points.
Market Direction Technical Indicators At The Close of June 5 2013
Let’s review the market direction technical indicators at the close of June 5 2013 on the S&P 500 and view the market direction outlook for June 6 2013. 
For Momentum I am using the 10 period. Momentum has been collapsing since a peak was set on May 15 for momentum. That means the last rally to new highs was not confirmed by momentum. It turned negative on May 29 and has continued to decline ever since.
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 sell signal on May 24. The sell signal is still valid and the MACD reading is lower, signaling that there is further downside action ahead.
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 negative and signaling further downside is ahead. It is now into oversold territory so a bounce back could be expected although it will only be a trading opportunity.
Rate Of Change is set for a 21 period. The rate of change is now negative and continues to move lower as investors are no longer buying the dips but have stepped aside allowing the market direction to fall lower.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling that the market direction is lower. It is extremely oversold which could signal a rally or a bounce back may occur over the next day or two.
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 signaling the market direction is lower but it is extremely oversold which is another indicator of a possibly bounce in market direction.
Market Direction Outlook And Strategy for June 6 2013
Today’s Spy Put Options trade was simple to enter into and really didn’t require any technical prowess but just confidence that the market direction would be lower. Investors could have bought Spy Put Options anytime in the early morning and sold at the end of the day.
Tomorrow and Friday may prove different. Friday is the non-farm payroll numbers. These can bounce a market up or down. With a number of the market direction technical indicators heavily oversold a bounce could be in the works here. Any bounce though should be used as a trading opportunity as the market direction has shifted back to down. A bounce back could recover half of the losses so far, but since those losses have not been great yet, any bounce may be short.
I have not put up trade ideas in the members section for two weeks now as I felt that overall the market direction would be lower and selling puts in any quantity is probably not the best idea yet as I felt lower prices would be coming for stocks. That may shortly change and I will begin looking at more stocks and possible opportunities especially if the market direction continues lower.
For Thursday then I am expecting a possible weak bounce but lower prices are still ahead. Any Put Selling I am doing is in small quantities as I expect better Put Selling opportunities shortly.
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