Market Direction For The Third Week Of Oct 2012

Market direction has certainly taken a bit of a tumble but on Friday the S&P 500 managed to hang on to the 50 day moving average.  The Dow Jones market direction on Friday managed to squeaked out a gain of 2.46 and clings desperately to the 50 day moving average.

Worst off is the NASDAQ market direction which is down $152.22 points or 4.7% from its intraday high of 3196.93 from September 21. The NASDAQ is being hurt by the tumble of Apple Stock and to a lesser extent Intel Stock. Apple Stock is the big name in the NASDAQ and with its continuing slide in hit an Intraday low on Friday of $625.30 before closing at $629.71. Apple stock is now down 11.3% from its all time high in what is a classic pull back in everything from the technical chart to the fundamentals. When every analyst is on the band wagon calling for Apple Stock to hit $1000 to $1500 within the next 3 to 4 months investors had to have known the stock was going to tumble.

The NASDAQ is now flirting with the 100 day moving average as it easily tumbled through the 50 day moving average.

Market Direction Is Not As Bad As it Seems

But presently with the S&P and Dow market direction clinging to their respective 50 day moving averages, this remains just a typical correction in an ongoing bull market. If the market direction breaks the 50 day for both indices then it will become time to be careful and consider raising small amounts of cash. If the 100 day were to break then the market direction is setting up for a challenge to the 200 day and any break of the 100 day is a strong signal to put on protection and consider raising more cash. Whenever stock markets test the long-term 100 day moving average it becomes tough for the markets to turn around simply because the 100 day brings out a lot of sellers. Mid-term investors don’t like to see the 100 day being tested let along break. In 2011 when the 100 day moving average broke sellers arrived quickly and the S&P market direction fell rapidly to the 200 day moving average.

But right now this market direction downturn remains nothing more than a correction with both the S&P 500 and the Dow well within reach of regaining their recent highs.

Market Timing Tools

On Friday the market timing indicators continue to remain bearish on market direction. Momentum is unchanged but still negative. The fact that it has not fallen further shows the continuing lack of concern on the part of most investors.

MACD however is falling further into bearish territory with a reading of negative 3.90 and continues to signal that market direction remains lower.

The Ultimate Oscillator is extremely oversold and is signaling that the selling is overdone.

Rate of Change remains negative.

The Slow Stochastic is extremely oversold but could conceivably fall further.

The Fast Stochastic is also extremely oversold and has been for a few trading sessions now yet it continues to show little chance of a bounce.

Market Direction Oct 12

Market Direction Outlook To Start The Third Week of October 2012

With three indicators extremely oversold, namely the Ultimate Oscillator, Fast Stochastic and Slow Stochastic there should be a bounce in market direction to start the week. Whether it is Monday or Tuesday, the market direction needs a bounce to bring the indicators back from such extreme readings. Meanwhile the MACD Histogram has since Sept 25 refused to signal anything but further bearish market direction action.

The bulls need some event to get them going. The bull market is alive and well until the 200 day breaks. Short-term though it looks like a bounce and then possibly some more selling. But then, that scenario should have happened last week.

I continue to do Put Selling but on small contracts of 5 or even 3 puts. I am reluctant to put more capital to work but at the same time stocks like YUM Stock, Walmart Stock, JNJ Stock, McDonalds Stock and XOM Stock are doing well and I have a lot of puts that should expire by week’s end unless something happens that can bring the market and all stocks a lot lower. I see no such event on the weekly outlook so I am anticipated a week similar to the last and should see a lot of my puts expire on Friday. Market direction remains bearish but we should soon see a bounce. It must be strong and have conviction to turn around the market direction from down back to up.