In my market direction comments this week I have commented a number of times that the markets would need a catalyst to push higher. That catalyst could have been the Fed comments, GDP numbers or a combination of factors. It turned out to be a combination of factors including Chinese PMI and a rise in employment. But as investors there is always the concern of the market direction moving too high. I received a lot of emails over the past two weeks as investors wondered why as the market direction seemed to stall I kept writing that I was unconcerned at this point in the market direction.
Market Direction Outlook
A lot of factors go into understanding market direction but the biggest factor is probably experience from years of investing. Markets eventually always set new highs as that is the nature of investing. Therefore when the market direction reaches into new highs, it becomes more a matter of following the underlying trend rather than being concerned that the market has reached into “virgin” territory. One thing to remember is that investors want the market to move higher. For the majority of investors, the higher the market direction is the more their investments grow.
S&P 500 Chart And Support
Each night and sometimes during the day I look at the S&P 500 chart. The chart below shows the past two months. I have discussed often the outlook over the past couple of weeks and part of the reason for my not being concerned was because the market was trending sideways as it has been working out the overbought condition. But the most important aspect has been that each dip during the day has been bought by investors. There has been no significant selling over the past several weeks. At the same time, once the S&P 500 moved back above 1670, that became my first line of support. As long as the S&P 500 stays above 1670, I am not concerned about the market direction.
Two other tools I use that I keep a good eye on are momentum and MACD. Momentum has continued to remain positive as the market direction pushed sideways. While certainly not climbing, momentum has not gone negative and each night in my market direction outlook I have commented how momentum is still positive. This has told me that the market direction up was intact.
The second indicator was MACD. On Wednesday July 31 MACD finally issued a weak sell signal. Each day prior you can see in the chart above, MACD had been positive. Yesterday’s weak sell signal had to be watched, but unless the S&P 500 fell below 1670, I would not have acted on the sell signal. If however the market had pulled back to 1670 and MACD had remained negative, I would have bought Spy Put Options.
Market Direction and the Media
The other factor investors have to ignore is the media. The media ALWAYS tends to be negative because negativity brings an audience. Throughout the rise in the market direction the media has remained negative. For every story I have read that looked positively at the market direction there have been 10 to 20 that were negative.
Take for example the articles below. These are from Bloomberg on the top and the bottom two articles are from Marketwatch. All three articles are from this evening right after the market direction made another new all time high breaking through 1700 on the S&P 500. Rather than writing articles to educate investors on why the market direction has continued to persistently push higher since the fall of 2012 (or how about since March 2009), the media prefers to run negative articles.
These types of negative articles if not ignored can be damaging to a portfolio because investors are always looking for the “right time” to invest and will often miss investing opportunities. Instead of looking for the right time to invest, investors need to understand how to invest in any market environment. This is what Fullyinformed.com has always been about. Understanding the media and learning what is worth reading is an important aspect of investing.
Market Direction Closing For Aug 1 2013
The S&P 500 closed at 1,706.87 up 21.14. The Dow closed at 15,628.02 up 128.48. The NASDAQ closed at 3,675.74 up 49.37.
Market Direction Technical Indicators At The Close of Aug 1 2013
Let’s review the market direction technical indicators at the close of Aug 1 2013 on the S&P 500 and view the market direction outlook for Aug 2 2013.
For Momentum I am using the 10 period. Momentum is essentially flat but today pushed up slightly. It did not push up as much as you might think with such a big jump. That’s because the market gapped up at the open and then essentially stayed flat.
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 and today it issued an even weaker buy signal. It is too early to act on either signal in my opinion. A clearer signal needs to be made by MACD.
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 and that’s 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 up slightly.
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 but the reading is so narrow that it is almost neutral on its outlook.
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 Friday. It is extremely overbought.
Market Direction Outlook And Strategy for Aug 2 2013
The market direction technical indicators are fairly positive. Again, I see nothing that concerns me and as explained I am continuing with my Put Selling and did add to the market direction portfolio this morning.
We saw a big jump today and we could now see some sideways action or perhaps even a slight dip but at present there is nothing that I see that indicates a correction of any kind is on the near horizon. Therefore the market direction remains up even if on Friday we get little to no follow through from today.
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