Market Direction For Friday Oct 26 2012

The market direction today opened with a very nice bounce and then gave it all back before finally pushing back into positive territory at the close. The question now will be how will the market direction react badly tomorrow with Apple Stock’s Earnings not meeting analysts expectations, Samsung continuing to gain market share and Amazon Stock losing another $274 million dollars or 60 cents a share despite revenue growing 27 percent.  All of these will impact market direction tomorrow.

Amazon Stock

Amazon Stock continues to bring in poor earnings numbers despite the continued growth of revenue. Now trading at 279.4 time price to earnings, Amazon stock is lucky to be trading at 1.9 times price to sales. It is this price to sales that keeps a lot of investors holding onto their shares. Meanwhile Amazon Stock is down 14.8% since Oct 5. This stock is not for the average put seller. However naked calls have done well if sold out of the money. But Amazon Stock while certainly interesting to follow, does not fit my Put Selling strategy of using large cap dividend paying stocks.

Amazon Stock Oct 25 2012

Market Direction and Initial Jobless Claims

Market direction moved up following a better than expected initial jobless claims that fell to 369,000 from 392,000 last week. If you recall the article I wrote on the strategy built around US Initial jobless claims, perhaps this might see a bit of support in the overall market direction.

Good Signs

There are some other good signs including durable goods which rose 9.9% in September after collapsing 13.1% in August. The UK reported their economy expanded 1 percent in the third quarter so at least not all European countries are dead in the water, although 1 percent is nothing to be excited about.

Interesting Stock News

By now everyone has heard of the decline in Netflix, which I think is totally understandable. I mean how many episodes of Hogan’s Heroes do you really want to watch anyway. Potash stock fell just 0.3% after it reported a 22 per cent dip in its third quarter earnings and lowered its full year guidance. Personally I thought it would fall further but perhaps in coming days it will. Meanwhile Microsoft Stock dipped to $27.86 and I sold a few naked puts. It closed just 2 cents higher. Finally PG Stock (Procter & Gamble) rose 2.9% despite a decline of 6.9% in earnings and a 4% decline in revenue. The rise was because PG Stock still managed to beat analysts estimates and going forward the company plans more cost cutting measures. Barrick Gold Corp rose 2.4% and Suncor Energy was up 1.3%.

Market Direction On The S&P 500

Meanwhile market direction this week has not been kind to any of the indexes. With the S&P 500 market sitting at the 100 day moving average the in dice is down .5% since Thursday of last week. The odds of the 100 day seeing a bit of a rally are probably 50% but since 2009, the number of times the S&P 500 has fallen to the 200 day moving average after testing the 100 day is almost 75%.

Market Direction on the S&P Oct 2512

Market Timing Technical Indicators

The market timing technical indicators are not encouraging. Today’s flip-flop in market direction from up to down during the day did not help the market timing technical indicators. There is no much change from yesterday except the Fast Stochastic and Slow Stochastic. Let’s review.

Momentum is bearish. MACD continues to decline deeper into bearish territory. The Ultimate Oscillator is close to being oversold but not yet.

Rate of change is still negative.

The Slow Stochastic is still negative by the D period is slowing its descent which could indicate there is enough support for a bounce. Indeed the Fast Stochastic is still extremely oversold and bearish but K period is almost neutral in relation to D period so again, a bounce may be in the works.

Market Timing Technical Indicator Oct 25 2012

Market Timing Technical Indicators for Oct 25 show market direction could bounce but still down overall.

Market Direction Outlook For Friday Oct 26 2012

To sum up the Market Timing Technical Indicators, they are overwhelming bearish but there are some signs of a possible bounce. I’ve been waiting for a decent bounce to push back up the premiums of my naked puts so I can Buy To Close (BTC) some of the at the money and slightly in the money naked puts. I will then be back selling them when markets end the rally. A little bounce could last a couple of days at least but Friday’s are rarely the days for big bounces once the market direction is in a downtrend.

What Could get The Market Direction Back Up

The market direction is presently still down, but that could change if some decent news arrives out of Europe such as Spain finally getting their bail out request on the table. Europe has been a mess this whole year, but surprisingly European Indexes in general are still up which might seem weird to a lot of investors. Much of it is investors belief that the Euro will not implode and Europe will eventually print their way out of the mess. If only it were that easy.

Other possibly instigators could include an end to the earnings reporting from big cap stocks. Shortly the earnings reports will end and investors will reposition themselves for the next quarter. It is always amazing how quickly investors forget the last quarter as they prepare for the next. Fedex is a very good example. It pulled back dramatically on its earnings announcement but have you seen the stock lately? Talk about a recovery! Investors have short memories.

The Presidential Election is just a couple of weeks away now and once that uncertainty disappears it may help boost stocks.

How about the powers that be finally deciding on the “fiscal cliff” and not going over? That should see a rally in stocks.

Last, market direction could get a boost simple because the stock markets are about to enter their best 3 months of the year.

Market Direction and Caution

But whether this will happen or whether stocks will be lower by the time any of this does happen, no one knows for sure. Right now my market direction outlook for Friday is lower, especially with Apple and Amazon earnings being lower than expected but remember, technically the market direction is set for a bounce and today that bounce almost worked. Perhaps tomorrow or Monday will see a rally back before more selling enters the wall street arena.

  • moises

    Also, we typically see a move up the last few days of the month and the first few of the next month.

  • Yes quite often this has been the case. Should be interesting to see what happens this month.