The outlook for market direction today was for stocks to attempt to push higher even if just marginally. The weakness we are seeing into the lunch hour is, in my opinion, an opportunity and not much to be concerned about. The choppiness in the markets at present continues to indicate that the stock market is attempting to break through resistance at 1775 and push higher.
Market Direction Outlook Intraday – 15 Minute 10 Day Chart
If we look at the past 10 days on the SPX and set the chart for 15 minutes you can see that the market direction up is stalling around the 1775 resistance level. There is a lot of selling each time the market gets that high. Part of the reason for this is the number of analysts who have pegged 1800 on the S&P 500 for the year-end. Many investors then are taking profits on each rise, rather than wait to see if the market direction can break through 1775. The question many investors are asking is, “even if the SPX breaks through how much higher can it go by year-end.”
Support at this point is sitting down at 1750 and until that breaks I am continuing to sell puts on my big cap stocks and waiting for more signals that there will be some kind of convincing move lower. Therefore, whenever the S&P pushes stocks higher, I buy back and close naked puts and then wait for the next opportunity to sell them on any dip back again. As you can see in the chart below there have been some good dips over the past 10 days.
Should 1750 break I will then apply more capital as I do believe any move lower will not be very severe going into the Christmas season so I will want to apply as much capital as possible into any decline before Christmas.
S&P 500 market direction over the past 10 days set at a 15 minute interval
2014 Gains Already “Baked In”
There’s that phrase again, “Baked In”. I was watching CNBC this morning when one of the analysts came on and indicated that he felt much of the gains for 2014 were already taken into 2013 due to the Federal Reserve failing to taper Quantitative Easing in September. He indicated that due to the Fed stalling, the market direction changed and many of the gains that would have been seen in early 2014 have not been made in the fall of 2013. He felt that 2014 gains for the most part are already “baked in” the 2013 year-end. He therefore was looking for a correction in early 2014 which he felt would set the markets up for single digit returns in 2014.
Another analyst commented that it is very rare when November and December see corrections and she was therefore buying and committing most of her capital.
November Corrections
Actually November has a dubious history of having corrections. In November 2011 the market corrected 9.8% which set up the December period for a very nice return.
The November 211 correction was 9.8%
November 2012 saw a market correction of 6.3% which set up December for a rally that has lasted through much of 2013.
The November 2012 correction was 6.3% on the SPX.
November Corrections
Many times in the past when the S&P 500 has had double-digit returns, November sees a short and sharp pullback which sets up December for a nice rally. Often that rally extends into the next year. it is rare though when we have a year like 2013 where there has been very few corrections and nothing of any magnitude. This could easily be the biggest reason why we could see some weakness into the remaining weeks of November.
Market Direction Into The Close for November 12
Despite the selling so far today, I will not be surprised to see the S&P trim the losses in the afternoon and try to close in the green. I am of the opinion though that the sell signal from MACD which we saw just a few days ago and which is yet to be confirmed, may have just been early and we may still yet see more downside before a year-end rally.
Therefore intraday today I do believe we could see the market direction close lower rather than higher.
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