Market Direction Clings To Bernanke Put Despite The Lack Of QE3

Market direction remains almost unchanged from my last market direction outlook. The stock market direction remains caught in a narrow trading range between 1300 on the low-end and 1375 on the top end. Yesterday’s stock market action was like today’s. The stock market direction took a tumble and then recovered. Today the stock market wandered while waiting for the Fed Chairman to make an indication about possibly commencing more Quantitative Easing. When that didn’t occur, the stock markets fell including more than 120 points on the Dow, but even the Dow managed to rally back and closed down just 48 points. Over the years of doing Analysis of the Stock Market this continual recoveries as a sign of strength among bullish investors who still believe there is upside to come in the market direction.

Market Direction Still Shows Resilience

At today’s market close the S&P was almost unchanged. While I realize that the media is full of articles about how the market direction has now been down for the longest period since May, personally I don’t believe there is any need to worry about this kind of action. What is important is that the market direction while still falling, shows remarkable resilience among buyers who see values in many stocks. As well, in bear markets almost all stocks fall, but in the case of the present market, many stocks continue to make new 52 week highs. While they are not in the majority it continues to be a good sign when doing analysis of the stock market. The stock market direction decline has now been 5 days and the S&P has returned to the 100 day moving average.

The S&P has now given back almost all the gains made from June 29 to July 3. That said, the market direction remains largely unchanged. The S&P is stuck in a trading range.

The problem the stock market is now facing is after 5 days of market direction down, most of the market timing indicators are showing stress. One more down day and MACD Moving Average Convergence / Divergence will be signalling a short-term sell signal.

Market Timing Indicators For July 11 2012

Among today’s market timing indicators momentum remains the strongest and continues to reflect the underlying strength among buyers. MACD Moving Average Convergence / Divergence has continued to fall and one more day could see this market timing indicator flash a sell signal.

The Ultimate Oscillator is barely positive with a reading of 50.22. Rate of Change is reflecting the same concern as the Ultimate Oscillator.

Slow Stochastic however is starting to show the selling pressures are weakening but fast stochastic is showing that selling is still present. The readings of both the slow stochastic and fast stochastic show that for the most part, investors are mixed which is definitely indicative of this market.

Market Direction and market timing indicators for July 11 2012

Market Direction remains sideways with a slight downward bias according to market timing indicators.

Market Direction and Market Timing Outlook

The outlook for market direction remains unchanged. The stock market is stuck in a range. Presently 4 market timing indicators are continuing to fall and 2 other market timing indicators are bearish. The consensus among market timing indicators is that market direction remains lower while overall the underlying market direction is still sideways with a slight bias to the downside. However after 5 days of selling, the S&P 500 could see the market direction shift back to up for at least a day or two.

Overall the indication from earnings is that many companies are going to miss their reduced expectations. Those investors who are waiting for Bernanke to turn on the printing presses do not realize that the stock markets have generally only corrected and not severely. I would think until something much worse hits the economy, Bernanke will continue to take a wait and see approach which may in the end prove the better choice.

Market direction is still holding to the belief that the Bernanke put on the market remains so the downside is limited. But the upside is also limited by earnings reports, and slowdowns in Europe, China, Brazil and the United States.

As mentioned in my market timing system article about using Initial Unemployment Insurance Claims, the best choice with market direction stuck sideways is to stay cautious and raise cash when opportunities allow. The market direction will eventually break one way or the other which will afford lots more income generating trades. Until then patience is a key ingredient to use in the present market direction environment and increasing cash levels to get ready for future trades is prudent.