Market Direction Is Extremely Overbought But Still Room To Advance

Market direction is now extremely overbought in the stock markets. While a pullback such as was seen today is not unexpected, the continual presence of dip buyers who step in when the market sells off for a few hours remains the name of the game. Market Direction has been strong although on light volume and with poor breadth. Nonetheless the past 6 trading sessions of market direction continually moving higher has seen a record not met since the end of 2010. Today the S&P 500 closed down just 1.76 points. Of most interest was the pullback in the morning which saw the S&P fall below 1400 and then a recovery back up to 1404.11.

The NASDAQ however closed up again today. The biggest laggards to market direction were the commodity producers as crude oil fell to $92.73 and gold closed at 1612.60 down $10.20 but still above $1600.00

Meanwhile it was Google Stock and Apple Stock that pushed the market direction back up. Apple Stock rallied strongly closing up over $8.00 or 1.34%. Google stock closed up $18.01 or $2.81%. Volume was also better today on all the exchanges. Much of the market direction move higher over the past 6 trading sessions can also be attributed to the US Dollar which has declined over the past week. There remains a distinct co-relation between the direction of the US Dollar and the stock market direction. If the market direction is up almost always the US Dollar is down and vice versa. This bears watching for use as a market direction timing element to consider.

Market Direction Outlook For Tuesday Aug 14 2012

The dip buying today continues to be the strategy of choice. Many investors did not get into this market after the correction in May. They have sat out much of the summer but with the summer now drawing to a close you can tell that many investors are worried that they may be missing out on what could end up being a rally into the fall months. They continue to take any opportunity of a pullback, no matter how short, to hand-pick selected stocks.

This remains excellent news for Put Selling which is my favorite strategy. However I will still be retaining 30% of my entire portfolio in cash, just in case there are opportunities ahead.

In the market timing indicators for today on the S&P 500, momentum is still declining.

The MACD Histogram is lower than on Friday as it continues to decline.

The Ultimate Oscillator is higher but is now very overbought.

Interestingly the Rate Of Change indicator is climbing from Friday’s reading and indicates that more upside may lie ahead.

The Slow Stochastic is extremely overbought as is the Fast Stochastic but while both show a pullback should occur shortly, there still remains room for the S&P 500 to advance if buyers continue to pick up shares on the daily dips.

Market timing indicators are showing that market direction may still pullback but there is a tremendous underlying strength still in the stock markets.


Market Direction outlook

Market Direction Conclusion

Market timing indicators continue to show the stock market as extremely overbought but this has not concerned investors yet. Each dip has been bought and while the S&P 500 and the Dow Jones closed lower, the selling in the day was quickly bought into by investors and the losses early in the day were wiped away quickly as the afternoon progressed.

This continues to defy many analysts who cannot understand how this stock market managed to continue to push the overall market direction higher.  If the market direction can continue to push higher it will draw in more investors who have become worried that they are missing out on the next big rally in stocks.

The outlook then is for the market trend of dip buying to continue and overall market direction remains if anything, sideways while the S&P 500 consolidates here before trying a push higher. A consolidation will erode the overbought extreme conditions and will return the stock market back to a new market direction push simply by churning sideways for a few days.