My market direction outlook yesterday was for the market direction to drift sideways with the bias to be up. Well the bias certainly won out today. Yesterday’s plunge of 0.9 percent was the biggest drop in two weeks. Wednesday’s plunge on the Fed comments is recovered today and almost forgotten as investors snapped up just about any stock that had been beaten back yesterday. Stocks definitely shifted higher thanks to the ECB dropping interest rates to half a percent, something they really should have done last year in my opinion. The Fed said yesterday it will keep buying bonds at a monthly pace of $85 billion and will raise or lower purchases as the economy dictates. That remains the major clue that the Fed is determined to improve unemployment.
Market Direction Heat Map
The heat map today was green everywhere except Utilities. I often look at the heat map throughout the day to assist in spotting any opportunities. The one opportunity today was Coca Cola Stock (KO) and Target Stock (TGT) which I took advantage of.
Heat map for May 2 213 - Click To Enlarge
Market Direction and the Weekly Initial Unemployment Insurance Claims
The Weekly Initial Unemployment Insurance Claims today came in on the low side. Benefits fell to 324,000 which marks the lowest level since January 2008 when the recession started. As well productivity of US Workers rose in the first quarter. The Weekly Initial Unemployment Insurance Claims has remained one of the best indicators for market direction. Whenever the numbers fall below 350,000 the direction up has trouble. Below 350,000 and market direction moves higher. While it may seem too simple, this market direction indicator has proved its worth numerous times.
Market Direction and Waiting For The Numbers
Tomorrow we get the April jobs numbers. If they are better than expected the market will definitely push higher. Lower than expected and we could see the market direction push a bit lower but I believe it will recover from any poor employment numbers. I don’t believe the April Unemployment Number will be any kind of “game changer” for the market direction up at this point in the present rally.
Market Direction Closing For May 2 2013
The S&P 500 closed at 1,597.59 up 14.89 points. The Dow closed at 14,831.58 up 130.63 point and almost recovering all of yesterday’s 138.85 point decline. The NASDAQ closed at 3340.62 up 41.49 points. The NASDAQ had an incredible day!
Market Direction Technical Indicators At The Close of May 2 2013
Let’s take a moment now and review the market direction technical indicators at the close of May 2 2013 on the S&P 500 and view the market direction outlook for May 3 2013.
For Momentum I am using the 10 period. Momentum yesterday continued to move higher despite the selling. Well now we know why. It was advising us that all that buying yesterday was going to push stocks higher today. Momentum is up again today advising that market direction is continuing 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) issued a buy signal on April 26 and is now moving higher another good signal for 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 back to being overbought. Let’s hoe it moves even higher.
Rate Of Change is set for a 21 period. Rate Of Change yesterday was positive and climbing indicating that even though the market direction was lower, there were buyers actively picking up stocks. Just like momentum, rate of change was advising investors that buying would continue today. It did, and the rate of change is higher again today.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is extremely overbought and is still indicating that the market direction is higher. However I have used the Slow Stochastic for years to time the market direction. When I see readings similar to those from today they have often indicated that within a couple of days the market direction will turn sideways with a slight bias up. Remember, the Slow Stochastic is not advising us what tomorrow will bring but what early next week will.
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 indicates that the market direction will be higher tomorrow. The Fast Stochastic is being used for one day outlook’s only while the Slow Stochastic is being used to look out past Friday. While the Slow Stochastic says market direction will be turning sideways early next week, the Fast Stochastic is advising that tomorrow will be higher.
Market Direction Outlook And Strategy for May 3 2013
So far the market direction technical indicators have been accurate at their predictions. Today’s strong performance could be a one day technical bounce but I believe there is something more to today. The Market Direction Technical Analysis indicates that the market direction will be higher tomorrow. However looking at the overbought condition of the market I won’t be surprised if there is weakness part way through the morning or early afternoon and then a higher close.
The strength of this bull market confounds a lot of investors and indeed there are many signals that warn that the market direction move higher is overdone. That said, it is important to trade that which is being handed to us. The market direction is truly more sideways with a bias up than simply up. But this grinding higher with see-saw movements is keeping option premiums high enough that selling out of the money puts on my favorite stocks is highly profitable and that’s all I need right now.
Tomorrow then, I am expecting a bit of weakness due to the overbought nature of the market direction up, but the direction is still up. Even if the unemployment numbers are poor we could see more weakness than expected but I do believe by early next week the market will have recovered from poor jobs numbers. If the numbers are decent tomorrow then the market direction will be solidly higher.
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