Market Direction For 1st Week of December – Up But Cautious

Market Direction during November saw a correction and a partial recovery. Friday saw the market direction waffle a bit as the market direction tried to push higher only to see the Dow up just  3.76 points, or 0.03 percent, to 13,025.58, the S&P 500 pretty well unchanged with a 0.23 rise to finish at 1,416.18 and the NASDAQ  dipped 1.79 points, or 0.06 percent, to end at 3,010.24.

For the entire month of November the S&P 500 recorded its smallest change in market direction since March of 2011 with a rise of just 0.29 percent. The Dow lost ground falling half a percent and the NASDAQ ended up gaining 1.1 percent for the month. This past week though saw the Dow almost unchanged at 0.1 percent gain, the S&P up just half a percent and the NASDAQ with the biggest gain, up 1.5 percent. The NASDAQ rise is understandable since it had fallen the furthest of the three indexes.

Market Direction and Fiscal Cliff

On Friday the markets should some resilience on the fiscal cliff issue as both Obama and Boehner spoke and yet the markets in general seemed to regard their comments as more political posturing than anything else. Trading though has remained choppy since the election and investors remained deeply concerned about the fiscal cliff, the chance of stocks selling off and the risk of missing another leg up.

Market Direction and VIX Index

Fear drives the stock market direction and right now the VIX Index does not appear to reflect the true underlying current in stocks. Instead the VIX Index is being swayed by the slight moves in the market direction up and down which is skewing the index and showing lower volatility than what is actually present. A narrow trading range is always a problem for the volatility index and investors need to be aware that there is an underlying current of weakness still with stocks. Investors remain concerned that the “bottom” could fall out of the market at present levels. A 20% correction from here would be deeply disturbing although I do not see such a correction on the immediate horizon.

Market Timing Technical Outlook

The market timing technical analysis has been accurate this year a little better than 75% of the time which is an excellent record. But 25% still leaves lots of room for market direction to not follow market timing technical analysis so it should be interesting going forward from here. On September 25 and September 26 the MACD signaled that the market direction had changed from down to up and was a perfect call on the recent downturn.

On November 21st and 23rd MACD has given a market direction up signal and it has not broken from that signal as of Friday November 30.In fact on Friday MACD continued to climb. Let’s review Friday’s market direction signals.

Market Direction for Nov 30 2012


For Momentum I am using the 10 period. Momentum is still solidly positive and continues to climb. Friday saw a flattening to the momentum curve but based on Friday’s action this is understandable.

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 climbing despite the market direction waffling here.

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 extremely overbought but in solid positive territory. NOTE that the second overbought reading is not nearly as strong as the first which could indicate indecision among investors and does reflect the lack of buying interest over the past two days from investors.

Rate Of Change is set for a 10 period. Rate Of Change is slightly down from Thursday which again reflects the same lack of buying from investors.

For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is overbought to the extreme. It however continues to signal market direction up but the extreme overbought signal could be a bit of a problem next week for the market direction to continue to push higher.

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 confirming the slow stochastic and sites in very overbought territory. The readings are still positive for market direction but the spread between the K period and D period is narrowing which often signals that market direction up is tiring which is what I posted on Thursday’s market direction outlook.

Market Direction Outlook For 1st Week of December

For the first week of December then the market direction remains higher but the market technical indicators are showing signs of tiring in the rally higher. The market direction though could jump higher on any solid positive signal on the fiscal cliff and this alone is what is keeping many investors in this market.

Market Direction Strategy

At this stage my market direction strategy is to stay cautious. I am still Put Selling against stocks but my interest is shifting more towards the stocks that are continuing to move higher like Home Depot stock, Visa stock, Scotiabank stock, Royal bank stock and the like. I am preparing for more positions on YUM Stock and will write an article on that stock shortly.

Market Direction then for the start of the week and month is for the market to grind higher but it is showing signs of weariness.

Internal Market Direction Links

Market Timing Articles Index

How I Use Market Timing

Understanding Short-Term Signals

Various Market Timing Systems