The markets had been in limbo over the past couple of days awaiting the outcome of the mid-term elections. While many predictions held that the Republicans would do well, investors were cautious although trading volumes showed a lot of investors were taking some profits both Monday and particularly on Tuesday. The elections win by the Republicans was cheered by many investors this morning who pushed markets higher to start off the day. By the afternoon though questions started to arise of how the economy and the country would do over the next two years with President Obama in charge of the Whitehouse and the Republicans in charge of the hill. Politics have been very polarized since Obama came to office and many investors and analysts now wonder what comes next.
SPX Intraday Nov 5 2014
The one minute chart below shows the situation today. The morning saw the big euphoric jump to 2023.56. The jump was understandable. Not everyone is a Republican support but in general investors like to have events finalized. The mid-term elections had investors stuck in limbo and now that they are out-of-the-way, investors were in a buying mood to start the day. That jump though was quickly met with selling and the market fell back to 2014.42. This was a drop of almost half a percent within the first hour of trading and shows how quickly the mood can change.
After the drop selling slowed and volume started to decline. This brought in the “dip buyers” who pushed the market all the way back almost to the day’s high by 1:00 PM. Once again sellers waiting on the sidelines stepped in even before buyers could get the market up to the opening high. The selling though was less than previously and the SPX put in place a new lower high for the day at 2016.50.
This should bring in buyers but I doubt they will recover the morning high. I am expecting a close around the 2020 level for the day.
SPX Intraday for Nov 5 2014 to 2:20 PM
SPX Intraday Outlook For This Week
Today’s action though is partly being caused by their being no support or resistance levels at the present time. The closest level of support is down at 2000. That though is perfect for investors especially those who like me, sell put options. As long as the market stays at or above 2000 there is no problem with a sideways pattern.
2000 to 1970
If though 2000 does break, 1970 will quickly be visited by the index. That means if 2000 breaks I will be back buying spy put options. Until then though I am not hedging my portfolio.
Market Direction Technical Clues
Technically there are some other clues that can be followed by investors to assist in knowing when to continue selling puts and when to either stop or reduce the number of put contracts being sold. Momentum is a good indicator at the present time. As long as it stays above 104 there will be enough strength to keep the S&P above the 2000 level. If though it falls below, you will see the same pattern develop that we saw in mid to late August where the index could just not get into new highs. So watching 104 is worthwhile on momentum.
MACD continues to have a decent divergence at 10.66 but again, the histogram, which you can see as the gray chart behind the signal lines, is still quite strong. Once that histogram thins down, watch for the market direction to begin to have trouble.
The Ultimate Oscillator is overbought which is a good sign as it shows investors are still interested in buying stocks even if the majority are doing it now on dips.
The Rate Of Change is the most worrisome at the moment. It needs to move above 4 or even 4.5 for readings to support the rally moving higher. Right now it is unable to move much above 3.00 which means weakness still is in this rally.
Finally we come to the Slow Stochastic and Fast Stochastic indicators. Both of these momentum indicators are showing a very overbought market but both are also almost neutral on the market. Overall the tendency among the two stochastic indicators is to be neutral with a bias to the downside which has been with the S&P now for several days and certainly all of this week. Investors need to see a stronger up signal from both of these indicators. Right now they are advising that this market is stuck.
SPX Intraday Nov 5 2014
Intraday Summary
You can see that the technical indicators show strength is still with the rally, but there is still an underlying tone of weakness in this rally. Once the market pressured to reach for new highs, a lot of investors drifted to the sidelines waiting to see what happens. At the present time I am not concerned with a sideways action. As long as the market direction is above 2000 the sideways action can continue for days. However if 2000 breaks, the investors sitting on the sidelines will step in a start to sell. That will quickly push the SPX down to 1970. At that point it is just a quick trip to 1956 and then a break of the present rally.
I am not expecting this to happen. Instead I think there is enough strength to keep stocks grinding higher, especially with so many investors worried.
Put Selling
My favorite method of investing is Put Selling, but at the present time I am staying only at valuations where I would own a stock. I have no interest in chasing stocks higher until the S&P established another line of support. The second chart above shows that 2000 has some support stretching back to the summer. It may be enough to hold the market up, but if a catalyst to the downside should appear then breaking the 2000 level will be easy for investors. This is why I am selling at put strikes that I think have a good chance of not being assigned but if they are, I would be happy to own shares at those valuations.
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