Today’s intraday market direction outlook finds the S&P, Dow, NASDAQ and IWM all moving higher but not aggressively so. In other words investors are being cautious here and patient. A rebound today is not unlikely as the Dow was down over 1200 points at yesterday’s close. The market and many stocks are so heavily oversold that it is natural for some stocks to be picked up. However there is a big difference between trading stocks and buying them for a move higher. Right now, it is primarily trading that is happening and not long-term or even mid-term purchasing.
Selling Volumes In ETFs
Yesterday saw a lot a selling in ETFs. Most ETFs saw volumes up double over their average daily numbers. A lot of investors, both instituti0nal and retail were unloading stock yesterday.
Support At 1750
Looking at the SPX chart this morning we can see that the S&P is struggling to hold onto the 1750 support level. This is support that was built up through October and November and it is this support that launched the run-up in stocks to new all-time highs. In my personal opinion I am not surprised to see the market back at the 1750 level. The run-up from 1750 built very little support. While light support may have been built at 1780, 1800 and 1825, that support was too light to make much difference on the way down. Indeed, the 1840 level acting as resistance was by far the more technically important indicator to follow. If the market had managed to break through and stay above 1840, then the S&P would have been able to build support at 1840 and moved higher.
That didn’t happen and now the market is back retesting support at 1750. If this support breaks the next level is all the way down to 1692 which is below the 200 day moving average. In the chart below you can see how negative momentum is. While the decline in June 2013 was over 7%, the momentum indicator did not fall as low as it did yesterday. Today intraday momentum is up slightly but not enough to signal any change in the trend down.
MACD is very negative and has been negative since Jan 8.
The last indicator I included intraday is the Ultimate Oscillator. You can see that the market direction down is very oversold. It has stayed oversold for 7 trading sessions including today. Today’s rally will help to alleviate this extreme condition.
Among all the indicators I am also watching the 50 day simple moving average (SMA). It is turning down after so many days of selling. I am watching to see if the 50 day falls down and over the 100 day. If this happens it will indicate that the downturn will last longer than expected.
Strategy In Use
I am staying invested but keeping large cash reserves out of the market. Most of the stocks I am still selling puts against are holding well in the face of the selling. Microsoft, Yum, Clorox, Johnson and Johnson, Apple, Intel, DuPont and a handful of others. I am taking smaller positions and staying out of the money. I have rescue strategies in place for every trade I am placing and I am closing trades early to capture profits as they happen. I am taking advantage of the volatility that has pushed up option premiums, but I am staying cautious with safety of my capital in use being of prime importance.
Selling Covered Calls
On longer-term stock positions I have taken out some covered calls positions to try to capture some premium if stocks continue lower. I am selling out of the money, at the money and in the money on some stocks. These are my core holdings that I have had for many years. Often I do not have covered calls on them but when problems emerge such as at present I like to take on some short-term covered calls to earn the call option premium. I rarely hold the covered calls to expiry. I usually buy to close all covered calls on long-term positions whenever I see the likelihood of what I think is a rebound in the underlying stock.
I am continuing almost daily now, to use the Spy Put Options and the Trading For Pennies Strategy.
Outlook Into The Close
Into the close I think we will see some weakness into the afternoon but then a push back into the close. I am expecting a positive close. A negative close today would be very bearish for stocks. Overall though I believe this bounce is technical in nature but we may drift sideways with a bias lower, into the end of the week when the unemployment data is released.
I think the S&P has a good chance to close at or near the 1750 support level today.
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