Stocks are an emotional investment and this morning is proof of that. Investors have feared for a long time that interest rates will rise and end the bull market when in fact the rise of interest rates is not what would end this bull but the panic of investors just might. The Weekly Initial Unemployment Insurance Claims came in for the first time since May 2007 down at 297,000. This has unglued investors who believe interest rates are on the rise. Yesterday is was fear of inflation and today the Weekly Initial Unemployment Insurance Claims has investors literally dumping their shares and fleeing positions.
The actual average of new claims over the past month actually fell by just 2000 to 323,250 but continue to stay at the post-recession bottom range. As well the initial weekly claims from two weeks ago was actually revised upwards to 321,000 from 319,000.
Consumer Price Index
The consumer-price index, this morning added another level of fear for investors as it showed that prices increased 0.3% in April which is the largest jump since last summer. This brings the total rise in consumer prices to 2% for the past year and investors know the Fed has to raise interest rates eventually.
DOW Market Direction Outlook Intraday
The market direction for today was for the markets to move sideways and lower. The lower action obviously started first and then the sideways action will follow later today. The mood is panic with the VIX Index up 11% so far and I am expecting higher numbers for the VIX. This is probably not the correction I am looking for but could be the start of weakness that will lead to lower prices in May and a stronger correction in June. That is just a prediction and nothing more. There are no technical indicators to advise for that type of prediction.
The mood the morning can be seen in the one minute Dow chart above. Sitting at all-time highs, it is surprising how often all-time highs cannot hold. Obvioously despite Janet Yellen’s comments last week, stocks are indeed not sitting with normal valuations. They are in general overvalued.
Techs and Small Caps Warned
In my market direction comments last week I explained that techs and small caps were leading indicators and that eventually the blue chips would follow. I still believe that. Many investors fled the tech stocks and small caps and put their capital into blue chips. No problem doing that but I hope they stayed for just a short time because basically then ended up buying into blue chips near record highs and that will mean heavier selling shortly when they realize they overpaid for blue chip stocks.
Today’s Close
I believe the Dow will probably close down 200 or plus points. That’s again just a prediction.
The Market Direction Portfolio
Yesterday I had been taken out of the NASDAQ position I was holding. Later in the day I bought back into the SDOW and SQQQ. I am still holding those positions at present and I do expect a bounce Friday morning and then more selling. I will be holding those positions through the close today.
Trading Positions
I have a lot of positions that will be expiring tomorrow and most are still in good shape. I have closed a number today though despite their being still below where the stock is trading. This is to raise more cash to be able to take advantage of a few other positions. I will be posting my trades all day and probably well into tonight as there is a lot of trading to post.
I will be staying to the downside for the time being although I am sure we will see a bounce but I do not believe the market will see any kind of rally to new all-time highs that can last. Investors have repeatedly tried that for 3 months and as I wrote often, eventually they will pull back when they realize that stocks are overvalued and must pull back lower to entice more buyers into the market. We saw this with every rally higher. As the markets pushed higher, momentum faded. You cannot have a sustained move to new highs and yet see declining volume and market momentum. No matter what any analyst says, these are fundamental to any type of asset class. It is a simple matter of demand and as we have seen, everytime stocks pushed higher demand has faded.
Internal Stock and Option Trades Links
Put Selling Strategies For Members
Covered Calls Strategies For Members
Profit And Income Strategies Index
Stock and Option Strategies For Members
Stock And Option Trades Explained For Members