Friday saw the market direction turn up on the jobs numbers and the belief the Fed will not be pulling back on Quantitative Easing any time soon. The move was large following the big up move on Thursday. On June 5th the S&P closed at 1608.90. By Friday the S&P had closed at 1643.38, a rise of 34.48 points or 2.1%. When you consider that the recent intraday high was on May 22 at $1687.18 you can see that this latest market direction correction was about as small as the April correction. The market direction up still has not experienced a serious correction.
Market Direction Chart for June 7
The chart below shows some interesting aspects of the past two shallow corrections in the S&P 500. The April correction saw a shallow momentum reaction as selling was muted for the most part. The rally that followed was strong and included strong momentum. The decline was quick and momentum was also deeper.
In both instances the 20 period exponential moving average (EMA) broke easily and then the market direction tested the 50 period and rallied back. 
Whether there are enough reasons for the markst to continue to rally and break the most recent high in doubtful at this point but if investor enthusiasm is strong enough, anything is possible. This decline though saw more selling than the previous decline. It will be interesting to see if the market rallies for a couple more days and then starts to renew the sell-off.
Market Direction Closing For June 7 2013
The S&P 500 closed at 1,643.38 up 20.82 points. The Dow closed at 15,248.12 up 207.50 points. The NASDAQ closed at 3,469.22 up 45.16 points.
Market Direction Technical Indicators At The Close of June 7 2013
Let’s review the market direction technical indicators at the close of June 7 2013 on the S&P 500 and view the market direction outlook for June 10 2013.
For Momentum I am using the 10 period. Momentum which has been collapsing remained negative but is moving higher and almost ready to turn positive after two days of gains.
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 still valid but the MACD reading is higher today but still quite 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 back positive.
Rate Of Change is set for a 21 period. The rate of change is also back positive.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is oversold and signaling that the market direction is now back to up.
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 signaling market direction is up. It was the fast stochastic that signaled market direction up on Friday.
Market Direction Outlook And Strategy for June 10 2013
Thursday may have been a key reversal day and at present certainly does look like the real thing. The bounce off the 50 period EMA is identical to the last two pull backs in the market and Friday’s big jump was strong throughout the day.
I have though seen this type of rally back only to be disappointed within a couple of days. Overall there has to be reasons that the market direction can move a lot higher and keep moving up. This is why I prefer stock and option investing.
In my portfolio I can stay with out of the money Put Selling and continue to earn income even if the market direction rallies higher or lower. For stock positions I can consider in the money covered calls that provide some protection against the market direction pulling back as well as earning profits if the market moves forward.
Rather than having to judge the market direction perfectly each day I can continue to earn decent profits, keep some cash to the sidelines and wait for clear signals as to the overall market direction. When the present rally started on Thursday I commented that this rally back could be suspect. It could easily be a reaction by investors and selling would return within a few days. I still hold to that belief.
For Monday then I am expected the markets to move sideways to down at the outset but the Market Direction Technical Tools are split as to further upside with 4 pointing to a higher market for Monday and two indicating the market direction is still weak. Probably the Fast Stochastic is the best indicator at this point and right now it is indicating that the rally will continue Monday but with the market now heavily overbought after two days of rallying, the market may take a bit of a breather on Monday.
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