As expected the market direction opened weaker this morning but unlike the past three trading sessions the market direction this morning did not immediately recover the opening drop. Part of this is the extreme overbought levels of the market which is bringing in sellers who are closing some positions for profits. The market direction has been steadily pushing higher and it is only natural for some profits to be removed from the market.
Market Direction and Apple Stock
Part of the weakness this morning though is being caused by another drop in Apple Stock. As FullyInformed Members know, I commenced my biweekly Put Selling strategy this morning. The first trade alert can be seen here.
I read an interesting article this weekend by money manager Robert Arnott and his colleague Lillian Jing Wu. The article called The Winners Curse looked at the history of the world’s largest stocks and what turns out to be a very disappointing record. Canadians will know this all too well from the collapse of Nortel Networks which at one point made up so much of the Toronto Stock Exchange index that when it collapsed it negatively impacted the entire index. The same is presently happening with the NASDAQ index which is too heavily weighted towards Apple Stock.
The article points out that the impact of this largest stocks like Apple on market direction of the indexes is negative for investors. After reading the article one has to wonder about the wisdom of putting your capital to work in the largest stocks.
Market Direction Intraday Chart Of S&P 500
Below is the intraday Market Direction chart for the S&P 500 Stock Market Index. The market direction opened down which was as expected. However there is a slight change to market direction which needs to be watched. The market direction sold lower for the 25 minutes or so and then tried a short rally and then fell lower still. About an hour into the day, market direction picked up and pushed back up but then again after 11 am, market direction fell. The second little market direction rally put in a lower high. If you extend that lower high right across to the longest red candlestick 25 minutes into the day’s trading you can see a pattern developing which is pushing the market direction lower. This shows the selling by investors taking profits this morning. It may set up the market direction for the entire day to trend sideways which was the outlook from the weekend for the start of trading today.
Intraday chart of the S&P 500 for Jan 14 2013
Put Selling Trades
The overall market direction remains up but as mentioned in my weekend comments, the overbought condition is so extreme and the market direction right at resistance that a rest may be in order for the S&P 500 before resuming the trend. It is this rest that may provide some Put Selling opportunities to increase the profits for the month. I will be posting shortly to the members site a list of stocks I am busy following this morning and which I am considering for Put Selling trades.
Market Direction Outlook And Strategy
The market direction outlook for today is continued sideways action with a slight bias up. Personally I think the market looks like it needs to rest but bull markets can often surprise to the upside which is why I am looking around for more Put Selling opportunities. The VIX Index is certainly not alarmed by today’s action and is up only fractionally. I am not expecting anything major from market direction today, up or down.
Internal Market Direction Links