Market Direction Outlook For Jan 17 2013 – Caution

Market Direction today ended up again as expected with a down opening and another climb back into the finish. This is another carbon copy day and these days will not last much longer. Today’s market direction action was a bit different and I believe it is a signal that the market direction may move lower tomorrow.

At the open the market direction fell which is becoming the normal move for stocks over the past few trading sessions. The market direction then stalled within a few minutes of opening and began to climb back higher. The push was not as strong as previous and this time, near the close a high was set for the day and then the S&P 500 moved lower. From that point the market direction continued lower and whereas earlier in the day the market direction had put in the usual higher highs and higher lows as it climbed back from the opening sell-off, this time the market put in lower lows and lower highs into the close.

Market Direction Chart for Jan 16 2013

You can see the pattern in the chart below. This is the 5 minute market direction chart for today. Each time the market entered a period of selling the selling was more intense than previous days. You can see in the chart the day’s high around 2:30 and then the selling into the close with each little rally ending with a lower high.

market direction for Jan 16 2013

market direction for Jan 16 2013

This might be nothing but usually it is telling investors that the market direction is stalling and will be pulling back. To confirm our suspicions let’s look at the market direction technical indicators to see what they are telling us at the close of trading today.

Market Direction Closings

The S&P 500 closed at 1472.63, up 0.29 points and the Dow closed at 13,511.23, down 23.66 points. The NASDAQ finally got a bit of a break today as Apple Stock rallied for most of the day allowing the NASDAQ market direction to close up 6.77 points to 3117.54. The Dow closing lower is not a great sign for tomorrow.

Market Direction Technical Indicators of Jan 16 2013

Let’s take a moment now and review the market direction technical indicators at the close of today on the S&P 500.

market direction Jan 16 2013

market direction Jan 16 2013

For Momentum I am using the 10 period. Momentum is still solidly positive. Today momentum continued to climb and this remains a bullish indication on market direction short-term, however it is the only indicator signaling the market direction can continue higher.

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 and is continuing to fall lower than yesterday’s pull back. So while positive MACD is advising that there is weakness in the market direction up.

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 positive and extremely overbought. Sometimes extremely overbought is a good sign as markets can still overbought for some time while buyers keep pushing the markets higher, but this time the extreme overbought indication has been reached with little more than the market direction clawing its way back from morning sell-offs. This is not a great sign and normally is warning that the market direction higher is having trouble.

Rate Of Change is set for a 21 period. Rate Of Change is still positive but it took a big drop today. As Rate Of Change is set for the 21 period, it is signaling a change in market direction with such a big drop today.

For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is overbought to the extreme and is giving a K period and D period reading that is almost identical, but the D period has the upper hand signaling that a change in market direction may be about to occur. At the very least, the Slow Stochastic is signaling that the market direction higher will have trouble if it can keep climbing. Instead it is signaling that the easiest path is sideways while the market tries to regroup.

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 is indicating the market direction could stall here as it too is showing almost identical readings for the K period and D period, but again D period has the large number although not by much.

Market Direction Outlook And Strategy

The market direction outlook for Thursday Jan 16 2013 is to see weakness creep into the markets. I won’t be surprised if we see a sideways to down market direction tomorrow.

I will be watching closely and I will put up an intraday market direction chart around noon hour. I will be waiting on Put Selling opportunities primarily because the signals from the market direction technical indicators are clear enough that the market direction up will stall here, so why sell puts if I can earn more in the next day or two for the same put strikes.

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