Market Direction Intraday Comments for March 18 2013

So was Cyprus a non-event? The morning market direction drop was quickly bought into and prices pushed higher. The insanity of taxing savers who keep capital in their bank accounts seems to have been brushed aside by investors who believe it will it will only happen in economies like Cyprus. The island of Cyprus hold almost a million people and represents about 0.2% of the annual economic output of the Eurozone. They had applied for a bailout last summer to keep the island nation from bankruptcy. The IMF and ECB pushed for this deal to be tied to a one time levy on savers accounts. Banks in Cyprus meanwhile sealed accounts on the weekend to stop people from withdrawing funds which many did through ATM machines. The IMF and ECB both assured Europeans that this kind of “bailout” package would never be imposed on larger economies such as Portugal, Italy or Greece seems at odds with the concept of a sudden tax on savers accounts. Meanwhile like the continuing basket case of many Eurozone countries, Cyprus apparently holds billions in Russian deposits which Germany and France have often claimed are money laundering centres. Cyprus has agreed to an independent bank audit to prove the Russian deposits are legitimate.

Market Direction Opening

The opening saw the S&P collapse not quite 1% and then buyers stepped in and since then the selling has been muted. This is typical bull market action where every dip is considered a buying opportunity.

Market Direction Opening March 18 2013

Market Direction Opening March 18 2013

Market Direction Intraday Outlook

The problem so many investors who are waiting for a correction face is a market with thin volume that continues to support higher prices as sellers are reluctant to dump their shares. The S&P is up 9.4% since January as of last week and yet it continues to show none of the signs of forming a top which I have explained in various articles and wrote extensively about on March 14 in the article 2007 VS 2013.

Market Direction top in 2007

This continuation of “dip-buying” is a sign of bull markets that have one thing in focus and that is higher prices. The more investors shun stocks and argue against any further advances the higher stocks move as sellers hold longer waiting for still higher valuations.

In this type of environment the strategy for those of us who enjoy Put Selling is to be selective and stay with large cap dividend paying stocks that are in trading ranges or rising. These types of stocks may not have the highest put premiums but they are among the safest of stocks and allow us to close early on Put Selling trades to earn profits while at the same time remaining aware of the risk of being exposed to the chance of a correction.

In my market direction comments on the weekend which you can review here I indicated that with a correction I would expect a move in the S&P back to just below 1500 which would be about 5%. This morning’s market direction action has not taken such a correction off the table but it has shown that investors remain convinced that higher prices for equities are still ahead and as such any correction may remain as shallow as the most recent correction from Feb 20 to Feb 26. That correction comprised from its intraday high of Feb 20 or 1530.94 to the intraday low on Feb 26 of 1485.01, a total of 45.93 points on the S&P or 3%. These are very shallow corrections and this one may prove even less.

Investors remain convinced that higher valuations for equities are still ahead in this bull market and as long as so many investors shun equities, the prices will probably move higher. I changed my market direction outlook from cautious to back to fully invested and I am continuing to look for opportunities daily to get more capital back to work. I will continue to close trades early when profits are reasonable, normally 75% of the entire trade to both protect my capital from any future correction but also to keep it working at bringing in more premiums from other opportunities for Put Selling as long as the market direction stays strongly bullish.

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