One of the great things about a weekend is it gives two days to reflect on the week’s activity, review market direction for the past week and look out into the new week to see what other issues might affect market direction. My stance has primarily been cautiously bullish. This means that I am still investing selectively within my favorite stocks but for most positions I am out of the money and I am closing many puts early rather than waiting for options expiry. For stocks I am buying through the Bollinger Bands Strategy Trade I am selling them when the stock reaches the Upper Bollinger Band or when the technical indicators point to weakness or the stock faltering.
Market Direction Review First Week of February 2013
Looking at the past week there are a few clues here as to what we might need to keep a watch on. The $1498 level on the S&P 500 is obviously important. The market at point A and B retested this level. Tuesday the market direction moved higher after breaking down and closing just below 1498. Wednesday though was not really a great day as it was unable to recover the highs made near the end of the day on Tuesday. Wednesday saw two attempts to break through and then Thursday the market direction fell again back to the 1498 level.. That seemed to be all that was needed to bounce the market direction higher. Friday opened with a bit of a bang and then the market stuck sideways into the close (point C).
At this point the high of the market direction at point C is not all that important. What is important is the 1498 level. You can see that toward the close of Friday the Bollinger Bands moved into what is known as a squeeze where both the Upper Bollinger Band and Lower Bollinger Band come together as the market direction tries to decide which way investors are going to push it. Many Bollinger Bands squeezes end with a drop in the underlying security or in this case the market direction.
The above chart from the past week is what is concerning so many investors. While media outlets and blogs love to publish how many weeks in a row the market has been up or down that is not actually as important as the overall health of the rally itself. Right now there are not a lot of signs of any impending big drop in the market, but there are lots of signs that the market direction may turn sideways. A sideways market is good for Put Selling opportunities but it bears watching as the longer a market direction stays sideways the more the chance is for the market to move lower.
Presently I remain unconcerned about the possibility of the market direction moving lower and I am aware that February tends to be the weakest of the best 6 months of the year. We could therefore see not a lot of action up or down and then possibly a move higher in March and/or April. Part of the problem coming up with be all the infighting over the budget problems that were simply extended. Europe as well keeps popping up and we have seen how quickly the markets pull back with any woes out of Europe. So while investors remain bullish, like all markets there are always obstacles, but then a lot of the time that’s what drives bull markets higher.
Market Direction Closings
The S&P 500 closed at 1517.93, up 8.54 points and the Dow closed at 13,9992.97, up 48.92 points. The NASDAQ closed at 3193.87 up 28.74.
Market Direction Technical Indicators At The Close of Feb 8 2013
Let’s take a moment now and review the market direction technical indicators at friday’s close on the S&P 500 and view Monday’s outlook.
For Momentum I am using the 10 period. Momentum is still positive and unchanged. Despite the week that you saw in the first chart, momentum stayed positive. It did not climb overall, but did stay positive. This is a good sign.
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 negative and the sell signal remains in effect. It has now been 5 days for the sell signal although it has not fallen more as it trends sideways along with the market.
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 turning sideways on Friday.
Rate Of Change is set for a 21 period. Rate Of Change is still positive and it is pulling back a bit but it is really more staying sideways.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is extremely overbought but the Slow Stochastic says the market direction will be higher next 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 also extremely overbought but it shows a distinct bias to the upside and has a strong reading at the close of the markets on Friday.
Market Direction Outlook And Strategy for Feb 11 2013
The market direction outlook for Monday Feb 11 2013 is still with a bias to the upside. There remains enough warning signs to keep me cautious but not enough to indicate that the market direction if it moves lower will be by much. So the cautious stance remains and the bias continues for the market direction to continue to try to move higher. 1498 on the S&P 500 is my level to watch. A move below that could signal the end of this rally for the rest of February.
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