Market Direction Roller Coaster But Market Timing Says Market UP

Market direction today is one of those wild rides that makes for an exciting day. While I realize that most investors do not enjoy these kinds of days, for those of us doing options, these are profit filled days. Opportunities abound on days like today and much of that profit is due to the work of my market timing indicators.

I did a number of trades today which I have written about in other articles so let’s get back to today’s market timing column. The first thing today to mention has to be the selling out of the gate. Panic set in from the outset and with European Markets in a tailspin, the Dow market direction was down 191 points by noon.

Market Direction And The S&P Wild Ride

At the same time, the S&P 500 was down to 1296.53 but if you look at the chart from today’s range you can see the market timing technical indicator, Momentum. I had watched momentum at the outset today when market direction fell quickly, since I was busy with a SPY PUT trade at the open.

Momentum fell rapidly first thing in the morning but after that it continued to rise despite the market direction moving lower. This is almost always a sign that the selling is overdone or certainly slowing. As well when the S&P 500 hit the 1296.53 low market direction refused to fall further but bounced.

The low in the morning of 1296.53 is higher than the May 18 low of 1291.98 and as a market timing indication, this still meant a higher low which is a bullish sign. This was also the case for the past two trading sessions so I took this as a sign that the S&P 500 might pull back to the 200 day which it had done in the prior two trading sessions. This is indeed what happened.

Market Direction On The SPX

Market Direction For Today On The S&P 500

Market Timing Indicators At The Close

At the close for today my market timing indicators all point to a selling climax. Whether it was the G-8 meeting and their supportive words for Greece, it really matters little. The selling ended the oversold indication and now the market direction is ready to either move into neutral or push up from here.

Let’s look at today’s market timing indicators.

If you look at the indicators below you can see that over the last few days the market timing indicators have been gradually improving despite all the selling and the doom and gloom.

For example, momentum is now up to 97.36 and still rising.

MACD, one of the best market timing indicators is negative but also rising.

The Ultimate Oscillator is indicating that the oversold condition is evaporating and the readings are starting to rise toward 50 which is the midway point for this market timing indicator.

Rate Of Change is still negative but has risen daily.

Both Slow stochastic and Fast stochastic are signalling, market up.

Market Timing Indicators For May 23 2012

Market Timing Indicators For May 23 2012 are moving back to positive.

Market Timing SPX Chart

The past three trading sessions have been interesting for the S&P 500 despite the mood of the market. On May 18 the S&P dropped to 1291.98 and after a 9.2% decline it has managed to turn for the past 3 days. Today was without doubt the most dramatic as the S&P fell to 1296.53 but then turned back and pushed once more to the 200 day moving average.

Market Timing Chart For The SPX

Market Timing Chart For The SPX

Market Direction Mood Of Investors

There are often many different factors that can be taken into account with Market Timing. These include the bullish sentiment of the market which has fallen to levels not seen since March 2009. Yet the VIX has not been reflecting disaster ahead. Instead the VIX today hit a high of 24.62 before closing to 22.33. Despite the dramatic plunge in stocks this morning, the VIX index was higher on May 18.

It is amazing how many analysts were bullish back in early April when the S&P 500 made its high. Today all that bullishness has been replaced by bearishness and very few websites are bullish. But as always there is opportunity in every market and for those who enjoy stocks and options such as myself it was an exciting day.

Market Timing / Market Direction And The End Of The Correction

To say that the correction is over is not yet possible. Today’s wild ride does give the market breathing room and perhaps that is all that it will take. The S&P 500 has tested the 200 day moving average several times over the past 4 trading sessions and today it held once more to that moving average. While I still believe that many stocks remain overvalued, that does not mean the market cannot rally back from this correction.

Market timing while certainly not a fine science, does assist in my decision-making process with regards to put selling, spy put hedge, and stock buy and sell trades. Today was an excellent example of how market timing provides profit potential in even the most hectic of market conditions.

My market timing indicators can be used by any investor to time entry and exit points for a variety of trades. I hope through showing my decision-making processes and the market timing tools I use, other investors will contemplate whether or not such tools fit into their investing strategies.

All of today’s profits were possible because my chosen market timing indicators were able to pinpoint market direction changes and as I have said before, market direction remains the single most important aspect of consistently profiting with stocks.