The market direction outlook for Thursday was for more downside action but a few events helped to push stocks back up. The first was the Weekly Initial Unemployment Insurance Claims. These came in better than expected with a drop of 21,000 to 323,000. This helped investors as many felt the numbers were good but not enough to get the tapering going this year, especially with just one month left in the year. As well with Yellen showing strong support for stimulus measures to continue, investors felt that any tapering of Quantitative Easing would definitely be in 2014. So the motto here would be “why worry now about what happens tomorrow”.
Bond Yields Rising
As well on Thursday 10 year Treasury notes were rising as investors continue to sell bonds. Rates hit 2.84% before pulling back to 2.79%. Any move above 3% is seen as potentially damaging to stocks but any move lower is seen as good for stocks. So today’s move lower was again picked by investors as a “good signal”.
Finally after 3 days of selling, many analysts were heard discussing how “cheap” some stocks had become. This is of course nonsense as most stocks had pulled back less than one or two percent. Still perception is everything and investors see what they want to see.
Missed The Boat
Finally, the last thing that is keeping investors in is the large number of fund managers including hedge fund managers who missed much of the rally and want to boost their annual gains for clients. I have explained this before including in my article on year-end window dressing. As well many retail investors have been out of the markets for years and with the markets roaring back almost 26% this year for the S&P, they are eager to not “miss the boat”. Today jump in the market is another indication of this type of thinking. The 3 day dip is the biggest since September and a lot of investors felt it was probably the last before the traditional Santa Claus rally which often happens between Christmas and New Years.
The January Effect
Finally, for the first time today a lot of the CNBC personalities were busy talking about the January effect and how much more stocks might move as the market direction enters into January. This type of talk is enough to get investors off the sidelines.
Market Direction S&P 500 Intraday For Nov 21 2013
The 1 minute market direction chart for the S&P 500 below shows how the day progressed. The morning saw a quick sharp short bounce. Then the market climbed steadily until 11:00 am. It turned sideways until early afternoon, climbed again and then held onto its gains into the close, closing near the highs. For the first time in many days there was not the usual mid-morning sell-off which I have used for the Trading For Pennies Strategy trades.
Advance Declines For Nov 21 2013
Advancing issues outpaced declining issues by a wide margin with 72% of all stocks advancing and 25% declining. New highs were at 157 and new lows 117.
Market Direction Closing For Nov 21 2013
The S&P 500 closed at 1,795.85 up 14.48. The Dow closed at 16,009.99 up 109.17 and at a new all-time high. The NASDAQ closed at 3,969.15 up 47.88.
The IWM ETF closed at $111.30 up 1.97 or 1.80% and sites on the verge of a new all-time high.
Market Direction Technical Indicators At The Close of Nov 21 2013
Let’s review the market direction technical indicators at the close of Nov 21 2013 on the S&P 500 and view the market direction outlook for Nov 22 2013.
The most important support line in the S&P 500 at this time in the ongoing rally remains 1750. That support line is holding the market direction up at present. Today is the first up day in 3 days. This follows the same pattern seen in September.
For Momentum I am using the 10 period. Momentum is still positive and today was back rising.
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 Nov 7 which was not confirmed. The signal of Nov 14 was market up and it was confirmed on Nov 15. Yesterday another sell signal was issued which was not confirmed today. Meanwhile though MACD did not turn back positive following 3 days of losses.
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 climbing into positive territory.
Rate Of Change is set for a 21 period. The Rate Of Change is positive and moved up slightly today.
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 and it is overbought.
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 signaling that the market direction is up and it is overbought.
Market Direction Outlook And Strategy for Nov 22 2013
The outlook for Friday has to be whether today was a bounce back or another leg up in stocks. While the Dow made new highs today the S&P 500 did not but it is very close to breaking through 1800 again.
in my intraday comments today I indicated that the market had to close above the level shown in the chart below. This was the close of Nov 18 and the open of Nov 19. The S&P closed above it without difficulty. This signals that the chance of this being simply a “dead cat bounce” is almost zero.
Today the Market Direction Technical Analysis indicators are split again. Two are pointing down, MACD and the Slow Stochastic. Four are pointing to higher prices. I would place the bets on the majority of indicators.
I believe tomorrow we could see some profits being taken but I do think the market direction up is intact and we will see higher highs shortly. For tomorrow I believe the close will see more movement to the upside. This is wonderful for Put Selling. The strength within the market direction up is keeping stocks from falling and placing naked puts in the money and at risk of assignment. 2013 has been the best year since 2009 for returns and among the easiest to trade.
It is important to keep things in perspective. In a rising market that has strength it is easy to be complacent. Instead realize that the ease with which profits are being made could end in the new year. It is always wise to stay with a strategy that has some protection built in whether it be a simple rescue or repair strategy or the knowledge that if assigned you would sell covered calls to be exercised back out. Remaining consistent no matter what the market, bull or bear, if the primary key to profits and protection.
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