Today’s market direction action was stronger than I had expected. The news of consumer confidence being the highest since February 2008 buoyed investors. This followed by the news that housing prices reached the first double digit increase in 6 years. Overall many investors seem convinced that the economy will not slow into the second half of this year and not into next. Meanwhile if there is further growth in the economy there is no doubt that the Fed will curtail its bond buying program. The question for investors still continuing to buy into the rally is whether today’s action is a signal that there is more upside to the present market direction move higher or whether this is an over enthused reaction by investors which is typical of strong bull markets. Indeed an article I read this weekend discussed the rise in borrowing by investors for buying into the stock market which is often a sign of a market direction about to pull back.
Since the collapse in 2008 to 2009 the recovery never produced the kind of enthusiasm we have seen over the past several months. Yet with the markets at new highs investors are continuing to stay in the market. As I indicated in my intraday comments today, the strategy has been use the dips in the stocks to make trades and then close those trades for profits when the market direction pushes higher.
Market Direction Highs Lost
In the morning the markets were sitting at intraday highs but then dropped back losing about 50% of the day’s gain. For example the Dow was up 218 points in the morning and then ended the day up 106.29 points. The same pattern was seen in all the indexes. Below is the 5 minute S&P 500 chart for today. The day’s high was set by 10:25 (point A) and the rest of the day the index pulled back until point B where the S&P was below the opening gap up in today’s market direction. The close was much closer to the low of the day than the high.
Today’s Market Direction Pattern
This pattern seen on all of the markets today may be indicating that the markets are reaching a short-term top at present. Indeed, my market direction outlook from Friday was for the markets to move sideways with a slight bias down. Whuile this did not occur today the market direction had a terrific run-up but then gave most of it back during the rest of the day. This market direction pattern today seems to be in keeping with the overall market direction outlook of weakness.
Let’s take a look at today’s market direction indicators to determine what hints they may tell us about what happened today. First though let’s look at the market direction closings for today.
Market Direction Closing For May 28 2013
The S&P 500 closed at 1,660.06 up 10.46 points. The Dow closed at 15,409.39 up 106.29 points. The NASDAQ closed at 3,488.89 up 29.74 points.
Market Direction Technical Indicators At The Close of May 28 2013
Let’s take a moment now and review the market direction technical indicators at the close of May 28 2013 on the S&P 500 and view the market direction outlook for May 29 2013. 
For Momentum I am using the 10 period. Momentum is positive but today’s jump in the market direction at the outset and then the decline did not change the momentum indicator into a more bullish stance.
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 Friday as expected. The sell signal remained valid all day and the close saw the sell signal grow in strength. The movement lower after the high in the morning has obviously been picked up by the MACD indicator which reflects the weakness we saw in the market. Market direction jumping up in the morning should have been able to hold the gains. MACD is indicating that the market direction may have moved higher today but in reality, it is weak.
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 moving sideways and barely positive.
Rate Of Change is set for a 21 period. The rate of change is positive but continues to move sideways.
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 lower.
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 the market direction is sideways or neutral rather than lower for tomorrow.
Market Direction Outlook And Strategy for May 29 2013
The market direction indicators from today are signaling that today’s movement was an over reaction by investors to the good economic news, but that the trend is still lower not higher. Perhaps today’s activity was over-done by investors but the bullishness of the market direction is quite evident. I held off on put selling today once I noticed that market direction pulling back in mid-morning.
I would expect lower prices tomorrow based on the technical indicators. I am watching the stocks that I placed in the watch list from this past weekend and will wait to see if the prices move lower tomorrow before deciding on put selling. There is never much of a reason to be selling puts when stocks are racing higher.
For Wednesday the market direction outlook is the same as my outlook for Tuesday, sideways with a bias to the downside.
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