My market direction call was wrong yesterday. My outlook was for the market direction was to trend sideways with a bias down. The market never saw down the entire day and there was no trending as it was up and away for market direction all day. So far this month then, my market direction calls have been wrong twice but sometimes when they are wrong they can be way off but then that is technical analysis.
Market Direction Action for Jan 17 2013
A few things pushed the markets higher before they opened and one was the bullish Weekly Initial Unemployment Insurance Claims which fell below 350,000 which is indeed a good sign. If these numbers keep improving the stock markets are bound to jump higher still. On top of that good news reports showed an improvement in housing starts which are rising to four-year highs. Homebuilder stocks did very well and PulteGroup Inc. closed up 5.3 per cent at $20.38 marking a multiyear high. The Dow Jones Transportation index reached a record high pushed along by many consumer stocks.
All this new blanketed worries over the debt ceiling debate and the question of will interest rates rise sooner than many investors expect. But not everything was good news with the Philadelphia Fed general business conditions index unexpectedly falling to a negative 5.8 per cent this month while economists had expected a positive 6.0. As well Bank of America closed down 4.2 percent at $11.28 and Citigroup was down 2.9 percent at $41.24 after they both reported earnings that disappointed investors.
Market Direction Closings
The S&P 500 closed at 1480.94.68, up 8.31 points and the Dow closed at 13,596.02, up 84.79 points. The NASDAQ closed at 3136.00 up 18.46 points. The S&P and the Dow closed off their highs for the day.
Market Direction Technical Indicators of Jan 17 2013
Let’s review the market direction technical indicators at the close of today on the S&P 500 to see what they predict for Jan 18 2013.
For Momentum I am using the 10 period. Momentum is still solidly positive and continued to climb. It has been momentum that continued to point to the market direction moving higher despite what the other technical indicators said. I probably should have put more weight on momentum and less on the other indicators when deciding on the market direction for today..
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) is still positive and climbed slightly from yesterday but it will take another up day to get MACD to continue to climb better than it did today.
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 still positive but is starting to fall back indicating that the market direction is not as overbought as it was earlier this week.
Rate Of Change is set for a 21 period. Rate Of Change is still positive but it continues to decline. With today’s big move higher you would have thought this indicator would have climbed but it is still signaling that the market direction will be lower shortly.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is overbought to the extreme and is signaling that market direction will be sideways one or two days out. This was almost the same signal as yesterday.
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 extremely overbought but unlike yesterday, it is signaling that the market direction is lower. This is not a dramatic move lower but more a sideways market direction as the stock market is so overbought that you would expect it to rest. Yesterday though I should have spotted that the Fast Stochastic was signaling the same as the Momentum indicator which was for stocks to move higher.
Market Direction Outlook And Strategy
The market direction outlook for Friday, options expiration for January, is for stocks to climb slightly but there should be a bit of profit taking during the day. With two indicators flashing market lower, 1 signaling sideways and 3 signaling higher, the market direction will probably keep trying to push to new 5 year highs once more. There is bound to be resistance at these levels and the market is extremely overbought, but sometimes an overbought market is a great bullish signal.
The strategy for this type of market is looking for opportunities and Put Selling those opportunities when they arrive. I am looking for dips in my favorite stocks and those will be the stocks I put sell against.
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