The market direction is doing exactly what was expected. The weakness though is causing some investors to become more nervous than last week. The present nervousness is understandable but remember that investing in stocks is never as easy as it was in 2013. In fact 2013 may be part of the problem. Stocks rose dramatically throughout 2013 with only minor hiccups along the way. Yet a lot of investors started dumping in their capital toward the end of 2013 rather than the beginning. This helped to inflate the final few months of last year. Much of that increase was probably destined for this year and could have held the market higher into the end of April. Still the reality is what we as investors deal with and we should know by now that stocks are risky assets and placing our capital into the market means we are always at risk of downturns and corrections. 2013 was a great year but 2014 could actually see better profits for those investors who are using strategies to enjoy profits from the volatility.
S&P 500 Intraday Market Direction Chart
The one minute S&P 500 intraday chart below shows the action today to around 1:20. You can see the first push higher in the morning right at the open and then the selling commenced. It has been a steady move slowly lower until around 11:00 AM when investors pushed the market to just above the 1850 level. From there the market direction tried a rebound which did gather any excitement at all. This resulted in a sideways pattern and finally a second attempt to break the 1850 level. This has resulted in another attempt to rally. The 1850 level is somewhat important but overall it is not a significant technical area. The real test is the 1840 area.
1840 Guideline
For the S&P 500, the 1840 level is the primary guideline to watch. As long as the S&P stays above it, the market direction higher is still intact. If though it should break, then there is a good chance the correction I though we would see in May or June could start early.
Last Week Of March
Historically, the last week of March has been poor for the overall month. While not poor from a stand point of any sell-offs, historically the final week of March has seen losses of around 1.5% on numerous occasions. So this is something to keep in mind.
Apple Stock Guideline
Another stock to use as a guideline in this market is Apple Stock. For example, this morning while the market direction is continuing to be pressured lower, Apple Stock is moving higher. This movement in the opposite direction is a good sign for the overall market direction up. A lot of what we could be seeing in stocks at present is a rotation of bigger institutions out of specific stocks and sectors to new ones. If Apple Stock should be able to maintain momentum up it will be a good indication that this present choppiness in the market is nothing to be concerned about. If it breaks about $575, the most recent high, then that will be bullish for stocks in general.
XLF ETF Guideline
Another guideline worth watching is the XLF ETF which is the US Financial Sector. You can see in the chart below that since September the financial sector has been moving higher. As long as this continues then again, this weakness in stocks is an opportunity for further investment and not a reason to raise capital by selling out. The positions to watch are the $21.50, $21 and $20.50. If the $21.50 level breaks, then I will be closing some positions and raising some cash levels higher. If the $21 breaks I will be turning more positions to the downside through selling calls and naked calls as well as Spy Put Options and buying the DXD or other such Ultra Bear or Ultra Short ETFs. If the $20.50 breaks, the uptrend is definitely over and stocks could be facing a stronger correction than I am expected at present. So again, the XLF is a good guideline to be using.
UPS Stock Guideline
There are of course other great guidelines to follow from Treasury Bonds and Notes to the Dow Transports to Utility ETFs, but another good stock to keep an eye on is UPS Stock. This is a major carrier and when UPS starts to have revenue declines and declining parcel volumes, watch for stocks to sell lower. You can also use Fedex Stock (FDX) for a guideline as it tends to trade the same as UPS. The most recent high was at the end of December which is exactly when the Dow made its most recent high. The next level of support was at the $100 valuation which UPS stock broke through after 9 days in January. That’s a long-time for the stock to try to hold support and show that a lot of investors are in the stock at or around $100. Once that level broke the stock easily fell through $97.50. The next level is $90.
At present the stock is having trouble recovering from the Feb 5 lows. This is not a great sign and unlike Apple and the XLF above, the UPS Stock chart is advising that investors should be a bit careful here until UPS can break through the $97.50 and stay above it. You can see that since the Feb 5 and 6, UPS Stock has moved back up and keeps trying to rebuild strength to break through the $97.50. It did this a couple of weeks ago but the recent selling has the stock back below $97.50. You can see that it is now trending sideways while the overall market direction tries to get a clearer path higher. I watch UPS very closely as it has been a great market timing system for many years.
Market Direction Outlook Into The Close For March 24 2014
Into the close I think investors will try to push back here. The 1850 level was held this morning which is a good sign. The problem will be the closing last hour. I am not expecting a positive close but I am also not expecting a big swoon into the close either. Instead the market direction looks like it wants to drift weakly into the close. I won’t be surprised to see the Dow down around 30 points and the S&P down perhaps as much as 10 but perhaps 5. Of the above 3 guidelines I mentioned, combining all three can assist in understand market direction movements and when to keep capital invested and when to start raising more cash through closing profitable positions. Right not there are warnings but other than UPS, none are showing a strong reason for any concern that the markets are about to pull back hard at this point. That means the market direction weakness remains an opportunity for more profits and I am still placing more trades. This morning I did GILD stock, selling the $65 put strike for April 19 expiry on the big drop in the morning. I moved my other bids lower. I also did a DXD trade on the market direction portfolio which I will write-up shortly.
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