Market Direction Down – Possible Bounce But Stay Cautious

My market direction comment yesterday indicated that the clear direction was lower. When a market direction cannot recover to the upside, it can only “tread water” for so long. All the indexes have continued on the same path and been unable to sustain any kind of rally. But each market direction rally showed more and more weakness. We have had quite the discussion on technical analysis on the options forum but it really is personal preference. For me after 35 years, I believe strongly that technical analysis is a terrific method for studying trends but it only works if consulted every day. Looking at trends when it “suits” an investor is of limited value.

Many people don’t believe in the moving averages including the 50, 100 or 200 day, but in my market direction comments and in my article on the members section looking at how I handle a market correction, I was well prepared for today’s market drop. My covered calls are all in the money but now some out at the money and a couple out of the money. These can be bought back for substantial profits and I can roll lower once again.

Meanwhile per my article on How I Handle A Bear Market on Oct 21 and then the RAISE CASH article of Nov 7, both of which I posted to the Fullyinformed site and members site, I bought my ultra shorts on Nov 7 when the markets broke the 100 day moving average. The DXD which covers the Dow Jones and the SDS which covers the S&P 500. These are both simple strategies that can pay big dividends. Now up substantially as of today’s close, I doubt this is the end of the correction.

Investing is easy if an investor has confidence in their decision-making ability. If they do not, then I believe they should step to the sidelines when the 200 day is reached in a market sell-off. That way an investor can protect what they have made to that point stay in cash, wait for selling to end and move slowly back in committing small amounts of capital rather than end up finding they have stepped in front of a freight train instead.

Market Direction on the S&P 500

Each day the S&P has shown lower highs and a further push deeper into the 200 day moving average. Momentum each day has built to the downside.

Market Direction Nov 14 2012

S&P 500 Market Direction Nov 14 2012

Dow Down 1119 points Since Oct 5

The Dow is down about 8% from its Intraday high of 13661.87 to today’s Intraday low of 12542.76 or 7.8% from the close of Oct 5 to today’s close. But again if you look at the chart you can see the same pattern of once the 200 day broke the Dow was in trouble. Each day’s rally ended and momentum continued to build to the downside.

Dow Jones Market Direction

Market Direction for the Dow Jones - now down 7.8%

Market Timing Technical Indicators

At the close of today here are the market timing technical indicators. Momentum continued each day to build to the downside. Momentum is still negative and falling further.

MACD which signaled a market down call on September 25 and 26 is negative and building to the downside.

The Ultimate Oscillator is heavily oversold and signaling a bounce but there is still room for it to fall further before the market might bounce.

Rate of Change is now negative 5.05 and signaling the market direction is down.

The Slow Stochastic is negative and very oversold but it is signaling that we may still get a bounce later in the week or next week but we may be lower when that happens. With options expiring on Friday perhaps we could see a bounce then.

The Fast Stochastic is extremely oversold and it too is signaling a bounce could be in the works.

Market Timing Technical Indicators Nov 14 2012

Both the Fast Stochastic and Slow Stochastic are not signaling much of a bounce though so it could easily be just what we have seen to this point, a small gain during the morning and then more selling in the afternoon.

Market Direction Close Today

Finally to end this look at market direction, the close saw a slight uptick at the end of today. This could easily just be a little bounce to end the day with bargain hunters but normally after such a heavy sell off, there is no uptick as investors will want to wait for Thursday to see what kind of damage has been done to the markets.

But this marks the first day in 4 that the market had a very slight uptick. This could mark the start of a bounce for Thursday or Friday.

Market Direction close

close market direction close for Nov 4 on the S&P 500

I will be updating the Member’s section tonight with some Corrections and Bear information. I have a lot to write about between my Spy Puts Trade for today, Trading For Pennies Strategy trade for today and what I am doing now with my ultra Short positions.

For tomorrow the chance of a bounce remains but any bounce as before must be sold into. The risk is to the downside in market direction so it is important to stay cautious and protected,  but after so much selling since the election, we should be nearing some point of a bounce. I will explain in the members section how I will be handling any possible market direction bounce and still protecting the downside.