Market Direction Intraday Jan 11 2013 – Consider Risk VS Strategy Used

Market direction this morning was weaker at the open and I did not expect that. I thought the market direction would pop higher and then fall as selling returned. The selling is very understandable. The S&P 500 is at a 5 year high as market direction grinds its way higher.  Many investors will want out. A lot of investors are concerned and worry that the market is too high. Still other investors and analysts paint a gloomy picture. But you have to ask yourself, if the Federal Reserve stops its bond buying program this year then they are seeing enough strength in the economy to make them wonder about inflation.

Market Direction and the Fed

By the way I read the minutes of the Federal Reserve report and they did not say they “were” stopping their bond buying program. They report indicated that some members thought it might no longer be necessary sometime in 2013, earlier than in 2014. They did not indicate it “will” be stopped. As well there is no mention of Mr. Bernanke. As well there is still the question of whether the Fed would “reduce” the bond buying program over a period of months which is not mentioned by any analysts or in their report. So the prediction by UBS that the bull market will end in 2013 because it is a “mature” bull market and inflation will return and the S&P will collapse back to 1100 or 1000 is truly anyone’s guess although they did a good job of making their analysis look like its worth the money analysts are paid.

Market Direction Intraday

Market direction intraday then is following the outlook of last’s night’s market direction technical indicators. Yesterday after the close I reported that the Fast Stochastic, Slow Stochastic, Ultimate Oscillator and Rate Of Change market direction technical indicators all pointed to sideways with a bias to up.

market direction 5 day chart

market direction 5 day chart of the S&P 500

The market direction 5 day S&P chart set for 5 minutes is above. You can see what is developing as the market direction is pushing higher. The red arrows show the obvious pattern of higher lows. This morning the pullback still stayed above the previous intraday low continuing the bullish pattern of the market direction moving higher. Meanwhile the blue arrows show the pattern of higher highs intraday. Today does not need to see a high, higher than yesterday, as long as today or Monday we do not see a lower low.

The above chart is bullish for the moment, but there is a lot of underlying resistance.

Market Direction and Momentum

A lot of the Market Direction technical indicators I use are momentum driven. The reason is obvious, as momentum is what drives market direction higher and increases stock values. The various momentum indicators I use though look at momentum from different aspects to give me a much bigger picture of the overall market direction.

This is why I also always use the actual Momentum Indicator among my technical indicators. It gives a true picture of just market direction momentum. Right now it is that market direction indicator which is of great interest.

The chart below is of the past 1 month of the S&P 500, daily at the close. Look at how the momentum of the day’s last week were building higher after the big rally on the fiscal cliff news. I have marked it as BETTER rather than worry about the numbers. That’s the beauty of technical indicators. You can for many of them simply glance and get a “feel” for what is going on in the market direction.

Now look at this week’s momentum. It is poorer and if you compare it to the prior weeks in December you can see that while momentum has been good this week, it is really more closer to average than growing. In other words there remains investor concern in this market at these levels and while the VIX Index flirts around the 13.50 level, it would be a lot lower if momentum was stronger.

Last, look at how for the past 30 days on a daily basis momentum has been negative only once and for a very short time. Momentum over the past 30 days has been one of the star market direction technical indicators as it has correctly predicted that there is enough buying power in the market by investors to keep pushing the market direction higher. Just remember though that if momentum keeps dropping as market direction moves higher, that is a sign of weakness and the market may pullback harder than investors are prepared for. Something to keep an eye on.

Market Direction and Momentum

Market Direction and Daily Momentum for 1 month in the S&P 500

Market Direction and Put Selling Strategy

The market direction is still up. The sideways momentum is natural as the S&P 500 continues to try to set new highs and resistance to those highs is heavy. The most important point right now though is that the new highs are being made. Once that ends I will be putting in place my Spy Put Options.

Meanwhile Put Selling in this environment is not so much cautious as it is selective. On the members website an investor commented whether he felt it would be better to wait for the debt ceiling to work itself out before continuing put seller. Another investor asked about Put Selling Microsoft stock so close to its earnings announcement or whether it was better to wait.

Market direction is what should dictate your willingness to part with your capital for Put Selling opportunities. If I am concerned about the stock I want to put sell against, I know that obviously I should not be Put Selling at this point. My concern is my guide. There are thousands of stocks available. Why risk against a stock I am concerned about. The same holds true for the debt ceiling. There is no rule that says you must be invested at all times. Being in cash is a strategic advantage. It creates countless opportunities to benefits from short trades including the Bollinger Bands Strategy Trade or a quick one week weekly Put Selling opportunity. Remember if you can only earn a quarter of a percent in a week selling puts, that is still a full one percent in a month.

I suppose what I am trying to say is, there is never a need to take chances. Being aware that market direction is reaching all new highs may seem dangerous for Put Selling, but then in 2009 when the market direction seemed destined for even lower lows, didn’t it seem dangerous then too?

Instead take the approach of what you can get for the risk you are willing to take. If you can earn a quarter of a percent in a week but you are far out on a stock when Put Selling the puts, then it is probably a decent trade. The same holds true on a stock like Microsoft Stock which was downgraded yesterday. If you like the company, then scale into Put Selling rather than taking an all or none approach.

Understanding the risks you are taking with your capital and focusing on consistent winning trades rather than the percentage gained, while at the same time being aware of overall market direction of the S&P 500, Dow and NASDAQ Indexes is a strategy that does well in almost any market whether at the top or the bottom of a trend.

Internal Market Direction Links

Market Timing Articles Index

How I Use Market Timing

Understanding Short-Term Signals

Various Market Timing Systems