Market Direction Bounce Back – Is It Just Technical?

Market Direction is seeing the bounce back that was discussed in yesterday’s market direction outlook at the close of trading.You can review that market direction outlook here. The question is though what changed. German business confidence rose to its highest level in 10 months but that confidence seemed at odds with the downgrade of the region’s economy for all of 2013. Indeed the Eurozone GDP looks set to contract by 0.3 percent. This will be the first back-to-back decline for the Eurozone. Meanwhile unemployment across the Eurozone is expected to climb to 12.2% up from 11.4% this year. The problem with all these figures though is that among the 17 nations there are so strong players and a lot of weak ones. Nonetheless these are not the kinds of figures that give me confidence that the market direction can just continue higher with only a bump here and there.

S&P 500 Market Direction Chart Mid-Day

Looking at the 5 minute chart mid-day I don’t see how the market direction will be closing on the high at the close for today. Here are the key aspects of today’s mid-day chart.

A. The gap open right at the start. This is never what we like to see to start off the day. Instead a nice crawling open gives more confidence that the market is not just bouncing back from being oversold after two days of selling.

B. Earning morning decline to about 10:30 but then

C. a new low after the late morning rally. This little decline was watched by investors who obviously decided to push stocks higher.

D. Strength moved in as investors bought some stocks which have been sold off and pushed the S&P 500 back up. But how technical is today in nature?

market direction mid-day Feb 22 2013

S&P 500 market direction mid-day Feb 22 2013

Market Direction Technical Outlook

Technically there are not many changes from last night. Again I have marked the key market direction technical aspects on the chart.

A. A nice bounce back today which has taken out yesterday’s entire loss is a good sign and the S&P 500 managed to keep the low of yesterday above the previous low from early February. Market Direction wise, this tells us that the move higher remains intact as the market simply put in a new higher low which is typical of a short-term correction. We may see a repeat of the correction at the start of February although I of the opinion that this will not happen and the market will try to push lower after today.

B. Momentum is hardly bullish. The push higher today is not bringing much momentum with it. This is a poor sign for market direction to be able to continue higher.

C. MACD which has signaled a market direction down since Feb 4 is actually lower mid-day than yesterday’s close. This shows the lack of conviction in today’s rally.

D. The Slow stochastic yesterday at the close indicated that the market direction had definitely shifted lower. The rally this morning has not changed that signal. the Slow Stochastic is confiming still that the markets will be lower next week.

E. The Fast Stochastic shows today’s bounce back but it too is still showing that market direction is down.

Market Direction Technical Indicators Feb 22 2013

Market Direction Technical Indicators Feb 22 2013

Market Direction Mid-Day Outlook

I have my suspicions on this rally that it is more technical in nature than fundamental. Nothing has changed between yesterday and today fundamentally in the economy. As well the technical readings still point to this being a market direction technical bounce back and nothing more. Two things we need to see. First is for the S&P 500 to close above yesterday’s open. The second is for the Fast Stochastic to signal that the move is back to up. Without either of these two signals I am staying to my Put Selling strategy of small positions, out of the money, selective stocks only and keeping a look out for opportunities to buy back my naked puts earlier than expiration.

So caution reigns still despite the nice push higher this afternoon in market direction.