My market direction outlook last night was for the market to open up higher and then spend the rest of the day moving lower and closing pretty well unchanged. That did not occur. Earnings from Google surprised to the upside and IBM by 1:00 PM had pushed the Dow market direction up by more than 70 points on its own. Most of the other Dow members were flat. The market direction remains strong and while I am still expecting the market to turn sideways and take a breather that may be delayed if Apple Stock earnings are stronger than expected after hours on Wednesday. Meanwhile Microsoft reports on Thursday.
The signs of being stressed on the overbought side are showing as more stocks are turning into the red. Any dip is a buying opportunity or a trade opportunity and that will definitely keep the market direction from slipping back very far.
McDonalds Stock is up slightly after their earnings came in a bit higher than expected with same-store sales in the US up 1.4% but other global regions were down slightly. Overall McDonald’s continues to slowly grow their earnings and their stock was soft for brief period during the morning and then picked up in the afternoon. Whether it is overvalued at above $93 is tough to say as often stock prices can stay elevated longer when investors believe there is more value to be had. Therefore investor exuberance pushes up the stock. Meanwhile I have not stock and all my naked puts are out of the money at present since the stock moved back above $90.00.
Market Direction Intraday Chart for Jan 23 2013
Despite the market strength we could be looking at a flat close for the S&P 500 or a move higher by a point or two, but that will depend a lot of what investors think earnings are going to be like after hours. With a number of companies set to report, don’t forget that history shows that even when analysts reduce their earnings expectation, which they have done for this quarter, as long as companies beat those reduced earnings investors but and push the market direction higher.
Now you know why I continue to believe in options in combination with stocks to provide income from options but to also provide some protection as well. Investors trade by emotion and that means stocks move higher than they might and definitely fall lower than they should. The best means to combat this emotion is for me to continue using options strategies to earn income and profit while at the same time remaining aware that market direction is the overall deciding factor and as long as I have option strategies that profit in both up and down markets I can keep investing despite market direction.
Market Direction Intraday Summary
The market direction is at extreme overbought levels as I believe a pullback remains in order but that does not mean it will happen. As I showed in my Ultimate Oscillator post last night, normally with the market direction very overbought and the Ultimate Oscillator absolutely screaming, the market direction will shift even if just for a couple of days of sideways action. That is still what I am expecting, but I am remaining invested primarily because my options strategies benefit my portfolio in up, down or sideways markets.
Internal Market Direction Links
Understanding Short-Term Signals
Market Direction Candlestick Daily View (Members only)
Market Direction Portfolio Ongoing Trades (Members only)