While Friday’s market direction didn’t see much of a bounce, Monday saw plenty of action. At one point the Dow’s market direction was down to 14,551. Last Wednesday (June 19) just 3 trading days earlier the Dow was at 15,112. That’s a drop of 561 points or 3.7% in overall market direction. The S&P is following suit. So is all of this a result of the Fed’s policy decision? It certainly does appear to be that way and today the US dollar was certainly a lot stronger. Commodities like gold and oil are getting hammered along with Bonds so obviously a lot of investors think the “tide has turned” when it comes to the liquidity which the Fed has provided.
Fair Valuation
We have to remember that this is not a bear market and there are no clear signs warning about an impending recession in the US. Indeed the Fed seems convinced that there are enough signs of the economy continuing to improve that they want to scale back and eventually end the Quantitative Easing program. This could however take months if not longer so is the present selling a bit of an over-reaction? Instead perhaps stocks are just working their way to fair valuation.
PepsiCo Stock
For example, PepsiCo Stock today got down to $78.20 before investors stepped in and pushed it back up to $80.00. But really at $80, the stock is overvalued when you look at the revenue growth.
Coca Cola Stock
Another stock, Coca Cola Stock, fell to $39.13 before closing at $39.53 but again, it is overvalued here and really is fairly valued at $38.
Clorox Stock
Then there is Clorox Stock, one of my favorites, which today got down to $81.30 but two trading days ago it was down to $81.12. This stock has to fall below $80 to get back to fair valuation and $77.50 is really the price I am looking for. The chance for that is pretty slim in the present market.
Market Direction To June 24 2013
If you look at the daily S&P 500 market direction chart below you can see that the market direction is down just 6.7% from the intraday high of May 22 which was $1687.18. The way the media is ranting on you would think this is 2008 all over again. Well it isn’t. The market fell apart at the outset today but then comments from Dallas Fed President Richard Fisher about how QE would not be an abrupt end lifted the markets back. Manipulation of stocks is a common event and is done by just about everyone including the government, so today’s comments were not unexpected. The S&P market direction closed down just 19.34 points which was a great recovery from earlier in the day when it was down 32.10 points. The S&P closed just below the 100 period exponential moving average (EMA).
10% to 15% Corrections
Most major corrections are 10 to 15 percent. So far the S&P is down just 6.7% so there is a long way to go before this becomes serious. The Fed comments were definitely meant to intervene in the market and remind investors that there is no way stocks will be allowed to collapse. There is no bear here with regards to market direction.
Market Direction Closing For June 24 2013
The S&P 500 closed at 1,573.09 down 19.34 and the Dow closed at 14,659.56 down 139.84. The NASDAQ closed at 3,320.76 down 36.49.
Market Direction Technical Indicators At The Close of June 24 2013
Let’s review the market direction technical indicators at the close of June 24 2013 on the S&P 500 and view the market direction outlook for June 25 2013.
For Momentum I am using the 10 period. Momentum is continuing to move lower and remains negative.
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 sell signal on May 24. The sell signal is strongly negative.
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 oversold which is the same signal as Friday.
Rate Of Change is set for a 21 period. The rate of change is negative for the tenth day and is moving lower indicating a lack of conviction among buyers.
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 down and is extremely oversold.
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 lower and is extremely oversold.
Market Direction Outlook And Strategy for June 25 2013
The market direction technical indicators are all pointing to more negative results for the market direction. However the comments by the Fed out of Dallas today are an obvious attempt to bolster confidence and slow the selling if not turn it around entirely. So while today’s market direction technical indicators point to the market direction as heading lower, I think there is a good chance the market may regain its composure here and push back.
The Fed does not want stocks to drop. A shallow correction is fine, but anything more than that I believe they are going to react. The news they want investors to hear is that the economy is getting better and the Fed is slowly going to take stocks off life support to get them to stand on their own.
Such a strategy will take months to implement and must be carefully orchestrated. Plunging stocks does not fit into this scenario and I believe it will not be allowed to happen. Therefore tomorrow I will begin looking for opportunities again to place small Put Selling trades back into action on my big cap stocks. Today I came close to selling puts on PepsiCo Stock. Tomorrow I would like to get that chance again, but I won’t be surprised if it does not happen.
For Tuesday then, the Market Direction Technical Indicators are all pointing lower. My personal market direction outlook though is there may be selling but I will be closing my remaining 50 Spy Put Options and will be looking to place some put selling trades. Somehow I think the market may use the strength of Tuesdays which have been strong for the most part since January, to try to do some bargain hunting. Stocks could move higher on Tuesday. Either way though I will be looking for Put Selling opportunities.
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