Market Timing / Market Direction Roller Coaster Ride

Market timing and studying market direction is something I enjoy very much. Today’s plunge after yesterday’s push up on what was perceived as good news out of Europe is just the roller coaster ride those of us who sell options need.

I sold options on RY Stock, BMO Stock, XOM Stock, T Stock, MRK Stock, Intel Stock, and MSFT Stock. The volatility index jumped 32% yesterday. If only my market timing and market direction work would allow me to buy and sell the VIX Index with the same confidence I have in put selling, imagine the returns!

But alas, I found years ago when I was trying my first foray into stocks that between winners and losers I usually ended up with between 5% to 12% in a year. I figured then, why bother worrying about which way is up when through market timing and market direction I can usually earn 12% in a year through put selling on my favorite stocks.

Yesterday when I put out my market timing and market direction call I had no idea the market would plummet in one day. My SPY Put trade for today though, was text-book and added nicely to my SPY Put cash cushion. The big drop in the market made for excellent pickings on selling out of the money puts.

Market Timing / Market Direction – Nov 9 2011

I am not too concerned about the market direction at this point though. While the market plunged today with almost 6 stocks down for every one that was up, my market timing indicators didn’t change much. I noticed a number of stocks seemed to be saying that the year-end rally might still be intact.

Market Timing / Market Direction Amazon Stock Still Way Over-valued

Amazon Stock fell 3.1%, but closing at 211.22 caught me by surprise. I really believed this stock could fall 8% or better on such a heavy down day, what with it still trading at 110 times Price to Earnings.

Market Timing / Market Direction AMZN Stock

Market Timing / Market Direction - AMZN Stock - Not Much Of A Fall and remains over-valued

Market Timing / Market Direction Priceline Stock Hangs Tough

Priceline.com had risen the previous day by $33.22 or 6.3%. Today in the big plunge it closed at 536.55, losing $16.30 or 2.9%. That doesn’t place the stock anywhere near even the 10 day moving average which shows a definite upswing.

Market Timing / Market Direction Priceline Stock For Nov 9 2011

Market Timing / Market Direction Priceline Stock For Nov 9 2011

 Market Timing / Market Direction – The NASDAQ Back To The 30 Day

The NASDAQ which has led the recovery from March 2009 fell to the 30 day moving average but it will take more than today’s plunge to get the 10 day simple moving average to cross back over the 20 and 30 day exponential moving averages to confirm the market direction is definitely down.

Market Timing / Market Direction The NASDAQ for Nov 9 2011

Market Timing / Market Direction The NASDAQ for Nov 9 2011

Market Timing / Market Direction – Not Worried Yet

I won’t put up a S&P chart for today since my line in the sand remains the 1200 level. Unless the S&P market direction changes to down and it can break through 1200 then the Santa Claus rally might still be intact. Europe though is creating this roller coaster ride for stocks and those who can’t stand volatility should consider getting off this amusement ride.

Market timing will continue to be difficult because of European events, which is why I prefer to look back a bit which helped me establish clear price levels in the indexes that I am following. If market direction changes and there is a solid move down breaking my “line in sand” levels on the indexes, then I will change to being more bearish.

But that’s the great thing about put selling. I don’t have to be right all the time with my market timing indicators or my market direction call. As long as I stay far enough out of the money, I can continue to generate income.

I won’t be surprised if tomorrow sees a bounce back up. But then we could see more downside and sideways action. The market needs a reason to push higher, whether it be earnings news or for Europe to calm down or well just about anything upbeat. Until then it will remain a roller coaster ride.

Meanwhile just a word of caution that I plan to be careful what put selling I will do into January. My market timing indicators currently look like January could be another market direction changer with markets turning back down for the new year.