The market direction outlook for today was for a continuation of the weakness but as explained in the market direction outlook a bounce was certainly possible especially in the morning. It is important when investing, especially when investing against market direction to understand the signs for an actual correction in direction of stocks and a pull-back. When stocks fail to build support levels but break out and rush higher drawing more and more investors in, there is a tendency of stocks to not build support. This leaves the rush higher vulnerable to a pull-back. For that pull-back to occur though normally two things have to be in place. The first is the overbought condition which obviously occurs from so many investors continually buying into stocks. The second is a catalyst or catalysts to the downside which investors use to convince themselves that “now” is the best time to take their profits and buy back in at lower prices.
Over the past several days we have had both of these happen. The first was the overbought condition and the second was the catalyst which is the fighting in Iraq and the rising price of oil.
Forget Media – Think Fundamental
The media is always filled with “bears”. Bears get attention because they literally scare the “living daylights” out of most investors. They purport to know things that the rest of investors don’t seem to understand. They then announce wild predictions of collapses, plunges, huge losses and basically “end of days” predictions. You have to set aside what you hear and read and look at what the chart is telling you. Last year I wrote a number of articles looking at all the collapses since the 1970’s and showed how any investor could have seen the warnings signals and not only got out of stocks but profited from the downturns. On my website I have an entire category devoted to bear markets and corrections. You can access it at any time through here. It is on the second top tool bar under the heading “bear markets”. Maybe I should change it to Corrections & Bears.
When worried about the outlook for stocks take a moment and read through the various articles. Then review the daily market direction article I write which is available to every investor. In that article I look at the signals that advise when we should be worried and when we should be taking advantage of weakness. Right now everything points to investors taking advantage of weakness. The fundamentals of every market have plenty of warning signs advising when there is serious trouble brewing and not simply an overbought condition that has to be worked out.
S&P Daily Market Direction Intraday Chart
Today’s intraday one minute chart shows an interesting picture. The first is the open which tried to rally and then became choppy and fell to the morning low. That fall back to 1927.69 brought in some investors and within minutes we entered into the morning 10:00 – 11:00 AM trade we have seen almost daily since the start of the year. This today was the best trade I have done this year with the Trading For Pennies Strategy. From there the market drifted sideways but note how the market is trying to cling to 1935. This is the same valuation I mentioned as being key in my intraday comment yesterday.
Intraday Market Direction Summary
As mentioned previously there is little support between where the SPX is now and the 1870 level. But that does not mean the market will not try to build some support here. What we are seeing now is stocks trying to build support to move back higher. Today could easily be just a lull and then more selling may start again on Monday. But overall there are no signs that this is anything more than a pull-back looking to try to build support and work out the overbought condition the market has been in. As of yesterday the Ultimate Oscillator was already starting to signal that the overbought condition was eroding quickly. At some point the market will make a support level and then try to build from there.
For today I am not expecting much in the way of any significant move into the close. I think we have a good chance for a positive close in all the indexes. Next week though is what we will want to watch to see if the market can build some support here or has to fall further before building support.
At the present time my strategies are unchanged and I am continuing to sell puts, trade those stocks that are oversold and ready for a bounce back and set up the odd credit put spread.