Market Direction today ended up pretty much as expected. A bounce to start and then ending lower as the market tries to consolidate the recent gains and waits for Friday’s employment numbers. The close saw the market slide in the last hour which is typical for an overbought market waiting for news. There are some bright spots and some not quite so bright, so let’s review Jan 31 2013.
Market Direction and Employment Numbers
A lot of investors are looking to the employment numbers to get this market direction moving back up. Indeed I expect the number should be fairly decent and the market could pop, but overall January was such a strong month, I won’t be surprised to see February disappoint. At this stage, it is all conjecture on my part and nothing more. It’s just that often when January has been a big gainer, it takes a lot of February to consolidate those gains and then the market moves higher into March and April. That may not be the case, but when you look at a lot of stocks it is surprising how many set new 52 highs in January. If this is the case in February there could be some very good action for Put Selling and options in general. On the flip side if employment numbers are poor, which I think is unlikely looking at the Weekly Initial Unemployment Insurance Claims over that period, the market direction will move lower.
As well don’t forget the US Weekly Initial Unemployment Insurance Claims came out today and they were back up above 350,000 to 368,000, nearing that 370,000 point where stocks tend to sell lower.
Remember that when stocks have moved up considerably in value, investors look for any reason to sell. Poor employment numbers could easily get the selling going. I could see that Doug Harris who manages the Market Direction Portfolio on the members section of my site also feels employment numbers will come in pretty well as expected. He didn’t make any moves in the portfolio today so obviously he is taking a wait and see approach.
Market Direction Action Jan 31 2013
The big news in tech stocks again today had to be Research In Motion, sorry, BlackBerry which fell another 6% and is back below $13.00. Facebook, which reported better-than-expected earnings late Wednesday had quite the wild ride in yesterday’s after hours falling almost to $27 before closing back above $30. Today it closed down less than 1 per cent at $30.97.
S&P 500 5 Minute Market Direction Chart
Below is today’s 5 minute chart which I have marked a few things of interest in.
Market direction for Jan 31 2013 in the S&P 500
Here are the Key Aspects of the above chart.
A. The low at the outset ended up being the low for the day which is often a good sign and is a sign of strength.
B. The intraday low was immediately rejected and again moved quickly back to 1498 before heading higher.
C. The intraday rally ended without setting a higher high than the morning high at 1504. This is bearish.
D. The sell-off late in the day ended exactly where the day started – 1498, which as explained is a sign of strength.
Market Direction Closings
Market Direction Technical Indicators for the close of Jan 31 2013
Let’s take a moment now and review the market direction technical indicators at the close of Jan 31 2013 on the S&P 500 and see what the outlook is for Feb 1 2013.
Market Direction Technical Analysis Jan 31 2013
For Momentum I am using the 10 period. Momentum is still positive but continue to fall. Tomorrow could be a pivotal day for market direction is momentum falls back below 101.00.
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) is still positive but the market direction pullback although only slight to this point is having a large impact on MACD which turned decisively lower and is now reading only 0.52. This number has to improve tomorrow otherwise I will be looking at my Spy Puts Trade by Monday.
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 gone is the overbought condition and the reading is falling rapidly now even though market direction is not falling by much, the Ultimate Oscillator is falling faster than the overall market direction itself.
Rate Of Change is set for a 21 period. Rate Of Change is still positive but it too is taking quite the hit. Just a few days earlier it was reading over 7 and is now at 2.44 the lowest reading since January 17.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is overbought but is signaling market direction down.
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 also overbought but it is indicating the market direction down and confirms the Slow Stochastic. Meanwhile the Fast Stochastic is showing a wider move to the downside could be coming as soon as tomorrow. The unemployment numbers will be important according to the Fast Stochastic.
Market Direction Outlook And Strategy For Feb 1 2013
The market direction outlook for Friday is for the markets to move lower. If they markets bounce because of the unemployment numbers being better than expected I am going to be trading covered calls as all the indicators above are looking poor and even with good employment numbers I would expect any bounce to be short-lived. A bounce could last all of Friday but if it does I will be pleasantly surprised.
The market direction up is over for now as far the market direction technical indicators are concerned. Something dramatic will have to happen to push them back to the point where they are once again indicating markets up. That I believe will be difficult for the moment. The belief that this is just a sideways trend before we resume moving back up, I think could be a mistake. I believe we could see a 4% or 5% correction in February simply because once the market stalls and pulls back, there are so many investors holding stock with gains they will want to secure those gains. This will push stocks lower so a 50 to 75 point pullback would not be surprising. Now this again is just conjecture on my part and right now the Market Direction Technical Indicators are not signaling anything like that. Instead I spent the afternoon speaking with some investor friends and I took a tally. Of the 400 members of our local group, more than half are already selling out of positions and raising cash. This tells me others may soon follow which will make Put Selling highly profitable again as it is bound to push market direction lower.
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