The market direction outlook Wednesday was for the market to have some weakness, move sideways but still close with a positive bias. Once again the market direction followed the outlook in what is becoming a pattern which cannot last much longer.
Market Direction S&P 500 Intraday For Jan 22 2014
Below is the 1 minute chart from today’s S&P 500. From the outset the market pushed slightly higher and then commenced to sell-off. By 11:00 AM the S&P was down to 1841. When the S&P failed to break back to belo1 1840, investors seemed to take this as a bit of a signal that the market direction was shifting to up and they began buying. The move higher as you can see, was erratic but it stayed above the 1843 level and managed to push above 1846 late in the afternoon before selling off right at the close. The S&P and NASDAQ both managed to turn in positive results but the Dow fell lower, pulled down by IBM disappointing earnings.
Advance Declines For Jan 22 2014
The advance decline ratio was almost identical to Tuesday’s price action. Declining issues lost out to advancers with 34% declining and 63% advancing (exact same percentages as Tuesday). There were also 224 new highs and 85 new lows. With the new highs still above 200 the market continues to show a bias to the upside.
Market Direction Closings For Jan 22 2014
The S&P closed at 1844.86 up 1.06. The Dow closed at 16,373.34 down 41.10. The NASDAQ closed at 4243.00 up 17.24.
Meanwhile IWM made another new all-time high intraday today at 117.37 before closing at 117.21 up another 59 cents or half a percent.
Market Direction Technical Indicators At The Close of Jan 22 2014
Let’s review the market direction technical indicators at the close of Jan 22 2014 on the S&P 500 and view the market direction outlook for Jan 23 2014.
The most important support line in the S&P 500 is still at 1750. That support line is holding the market direction up at present and that has not changed. The second support level of 1780 is light support followed by third band of even lighter support at 1800. There is a growing band of support developing for the market at the 1825 level. Resistance remains at 1840 which the S&P closed above for the second time today.
For Momentum I am using the 10 period. Momentum has been the best indicator over the past two months, replacing MACD as the most accurate indicator. Momentum is still positive but down from yesterday.
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 Jan 8 2014 which was confirmed on Jan 9. MACD is still signaling sell but is unchanged from yesterday.
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 moving sideways.
Rate Of Change is set for a 21 period. The Rate Of Change is positive for the 22nd day and is now trending sideways with a slight bias lower.
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.
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 will move lower on Thursday.
Market Direction Outlook And Strategy for Jan 23 2014
I had a busy day today writing a lot of replies to investors and offering suggestions. The earnings this quarter has not been kind in many ways and a lot of investors who thought they wanted stock have now decided they would rather not own any.
Lululemon Stock
Stocks like Lululemon which is now below $50, trading day as low as $47.30, has hurt a number of investors who sold puts against this speculative stock when it was trading just below $60. I spent quite some time today with three investors who did not roll down or put in place any rescue strategy when the stock collapsed past their naked puts and left them deep in the money. This is the problem with speculative stocks. Below you can see the past couple of months and the dramatic plunge just last week in Lulu stock. Both the Fast Stochastic and Slow Stochastic show that the stock is incredibly oversold, Momentum though is strongly negative and has not recovered yet as investors keep selling out of this stock.
To handle the recovery of deep in the money puts perhaps waiting for an expected bounce may assist in a rolling down and out effort. Personally I like the idea of keeping some puts at the $57.50 level and roll forward while slowly reducing the number of naked put contracts at $57.50 and moving those lower. This might assist in the event that the stock sees a bounce back which could the stock close to $60 and let these investors get out of their in the money naked puts.
Coca Cola Stock
I realize that speculative stocks are a favorite of those who love to sell or buy options. The option premiums are always larger than the large cap stocks I prefer such as Coca Cola Stock. But while the premiums may be larger, the risk matches the premiums available. For my trades I prefer stocks like Coca Cola Stock. The premiums may not be as good but the stock has a large institutional following and it tends to trade in a tight range making Put Selling still quite profitable.
The two month chart below shows that after the recent sell-off in the stock, it bounced off the Lower Bollinger Band which is around where I sold puts. It then has moved back higher and both the Slow Stochastic and Fast Stochastic have issued buy signals just two days ago. Momentum meanwhile is negative, but not nearly as negative as Lulu stock.
So while I cannot often get fat option premiums in Coca Cola Stock, I also know that if it fell $10.00, I would have no problem picking up shares and selling more puts. This is the difference between a speculative stock like Lulu Stock and a big Blue Chip like Coca Cola Stock. Investors see the plunge of Lulu stock as a disaster while if I witnessed the same plunge in Coca Cola Stock, I would consider it an amazing opportunity to pick up shares.
Remember then that selling options against speculative stocks has to be done with rescue strategies at the ready to assist in repairing trades and keeping them profitable throughout.
Outlook For Thursday
For Thursday the technical indicators are almost unchanged from yesterday. I think stocks will still trend sideways but the bias is becoming more mixed now with 3 indicators solidly negative and three other indicators sitting positive but just barely so.
I think tomorrow could be a copy of today but instead of a positive close we could see a negative one. Overall though the market direction is mixed for Thursday.
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