Market Direction Is Overbought And May See Weakness But Trend Is Up

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Market Direction saw a day changer on Friday. While the stock market is now overbought and should see weakness on Monday or Tuesday, the market direction has now been changed and unless something totally unexpected comes out of Europe, the mid-term market direction trend is back to up. Whether investors are too bullish or not and whether the changes Europe has made will make any real difference, it does kick the can down the road once more and that’s all that investors care about at this stage.

With many of the world’s markets already in bear markets the changes made by Europe should push the Euro higher and the US Dollar lower. This will impact US Equities in a positive way and help to push market direction higher.

Market Direction Outlook For Early Next Week

Looking at the S&P chart below for the past few days you can see Friday’s huge move which has brought the S&P right back to the 1362 level. The stock markets are now overbought and there should be some weakness on Monday and/or Tuesday. However I would not expect the markets to pull back much. The S&P may pull back to 1344 but I would doubt much more than that.

Market Direction For June 29 2012

Friday set the market direction up for a significant change. Monday and/or Tuesday should see some weakness but the general market direction trend is back to up.

Market Direction and The VIX Index

Friday saw the VIX Index plunge back to close at 17.08 which is a good sign supporting the market direction change to up.

Market Timing Indicators For June 29 2012

Sometimes timing the market is easy and often stock market analysis tools give a very clear picture as to market direction and what to expect next.

In general the market timing indicators are all positive. Momentum is back up and rising. MACD doubled the convergence as being one of the stronger stock market analysis tools, it holds a lot of importance in predicting market direction. MACD is signalling market direction is up. This does not mean there will not be any selling the next couple of days. What MACD is saying is that the overall general market direction is up despite any selling on Monday or Tuesday of this week.

One of my favorite market timing tools, the Ultimate Oscillator is back to extremely overbought. This is almost always followed by some selling, but not always. Remember bullishness can last longer than investors realize so the markets can stay overbought for a while.

Rate of Change has jumped from negative to solidly positive which is another good tool for timing the market.

The last two market timer tools are the slow stochastic and fast stochastic.

The slow stochastic signal is also solidly up and is not as extremely overbought as the fast stochastic.

The fast stochastic with a reading of %K 98.66 is extremely overbought. It is rare when that market timing signal is not followed by some selling to relieve the extreme overbought reading.

Market Timing Indicators For June 29 2012

Market Timing Indicators Are All Solid positive with strong overbought readings on two important indicators.

Market Direction Outlook Means Put Selling Any Weakness From Here

For market direction to change back to bearish, the S&P 500 would have to fall considerably from here. In the last downturn the market did not break the 1300 level which shows considerable strength despite the lack of buying. Recalling that this correction was about 10% although to listen to the MSNBC analysts talk you would have thought the market was down 25%, the chance of a summer rally is quite good. While my market timing technical indicators cannot judge this, the slow stochastic and MACD are both indicating that market direction should continue higher once the extreme overbought condition is dealt with.

I will be looking for put selling opportunities at any weakness in my stocks and I will be using margin as long as the market direction does not fall below 1344. Friday’s rally was huge not from just numbers but from momentum and change in mood among investors.