In my recent market direction comments I have pointed to the 1670 level as the first line of support for the ongoing rally. Until that line is breached I am not concerned about the market direction continuing to trend sideways. That said, it is a bit concerning to begin to read about the increase in bullishness among investors and various analysts. Some have recently gone so far as to say that the bears are “dead”, which I think is a mistake. It is always when investors least expect a pullback that what turns out to be a slight weakness becomes a large correction. Today for example analysts were busy discussing how the Dow Transports had issued another buy signal. There are a lot of analysts talking about smooth sailing for the rest of the year. This could be a mistake.
Statistics For The Balance Of The Year
It is interesting to note though that the Trader’s Almanac indicates that in almost 90 percent of the years when the markets have been up better than 15% by the summer, the rest of the year witnesses a rise of less than 6%. While it is just another statistic, it is important to stay focused on profit-making strategies but stay vigilant for changing market conditions.
S&P 500 Chart And Support
This is why after studying the S&P 500 I can see that the 1670 level marks the first line of support for the latest market rally. Even with the market direction trending more sideways than up I remain unconcerned and am continuing to sell puts and do the odd stock trade here and there. If however the 1670 level should break I will be purchasing Spy Put Options.
The chart below for August 5 shows that a very weak sell signal was generated on July 31 by MACD. That sell signal needed confirmation which has yet to appear. Meanwhile MACD has turned positive but only slightly. So far then there is still the MACD possible sell signal to consider. As well if you look at momentum you would think it would be stronger to the upside after the big jump up in stocks late last week. This though is not the case.
The two lines of support in the S&P 500 that are worth keeping on the watch list are 1670 and then 1650. If 1670 breaks I believe the S&P 500 will quickly collapse to 1650. Both of those valuations will be worth considering for Spy Put Options to benefit from a move down in the market direction should it occur.
Market Direction Closing For Aug 5 2013
The S&P 500 closed at 1,707.14 down 2.53. The Dow closed at 15,612.13 down 46.23. The NASDAQ closed at 3,692.95 up 3.36.
Market Direction Technical Indicators At The Close of Aug 5 2013
Let’s review the market direction technical indicators at the close of Aug 5 2013 on the S&P 500 and view the market direction outlook for Aug 6 2013.
For Momentum I am using the 10 period. Momentum is essentially flat and while positive there is not a lot of strength being exhibited. There is though an underlying current of strength which is why when the market dips, traders step in to try to buy the dip and sell once the market tries to stage a move back higher.
For MACD Histogram I am using the Fast Points set at 13, Slow Points at 26 and Smoothing at 9. MACD (Moving Averages Convergence / Divergence) issued a weak sell signal on July 31 which was not followed by a confirmation of that sell signal. Instead since July 31 MACD has continued to issue a very weak buy signal.
The Ultimate Oscillator settings are Period 1 is 5, Period 2 is 10, Period 3 is 15, Factor 1 is 4, Factor 2 is 2 and Factor 3 is 1. These are not the default settings but are the settings I use with the S&P 500 chart set for 1 to 3 months.
The Ultimate Oscillator is still positive but flat but remaining positive is all that is important for the Ultimate Oscillator at this time.
Rate Of Change is set for a 21 period. The rate of change is positive and trending sideways.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling that the market direction is up and it is overbought. The signal though is quite strong and as the Slow Stochastic looks out more than a day or two it is signaling that the market will be seeing higher prices later this week.
For the Fast Stochastic I use the K period of 20 and D period of 5. These are not default settings but settings I set for the 1 to 3 month S&P 500 chart when it is set for daily. The Fast Stochastic is indicating that the market direction is up for tomorrow and it too is extremely overbought.
Market Direction Outlook And Strategy for Aug 5 2013
The market direction technical indicators are dominantly positive. After the big jump late last week in the market direction we are seeing a lot of sideways action here with a slight weakness to the uptrend but this is generally to be expected. The market direction has pushed to all time highs and despite what analysts think, a lot of investors remain nervous and that is good for market direction up. Keep a watch on MACD for as long as it does not confirm the sell signal from July 31 during this week than the market direction up remains intact.
Overall the key support levels I am staying aware of are 1670 and then 1650. I see nothing at present that is telling me we could see 1670 retested and possibly broken. Instead I believe the market direction higher is intact but busy doing some slight back testing to be sure there is enough support that the market direction can push higher still.
I have not changed my strategy at all over the past several weeks. I have the majority of my capital invested securing many naked put positions and I am still looking for more opportunities such as Visa last week. When my capital is used up I will turn to margin. Only if 1670 breaks will I pull back on the amount of capital I have at risk in the present market. For August 6 I see more sideways action with a definite bias to the upside rather than downside. I believe we could see a higher market tomorrow even if just a weak rise from today’s close but even if not there remains an underlying strength which is keeping the market direction poised to push higher.
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