The market direction outlook for today was for the market direction to begin to stall as it tries to work out the extreme overbought condition. Friday’s closing 52 week highs told the tale with an incredible 478 new 52 week highs versus just 78 new lows. The market direction higher cannot continue with these types of numbers and they show the frothy atmosphere that has surrounded stocks since the debt ceiling fiasco was resolved short-term.
Meanwhile interesting developments in Gold where HSBC upgraded its stock ratings on a number of gold stocks citing strong demand for gold and the decline in miners as overdone which has “opened up value again”. They pointed out that lower prices has resulted in less gold supply and expect gold prices to rebound from present levels. Stocks they mentioned included Barrick Gold Stock (ABX), Goldcorp Stock (G), Agnico-Eagle Stock (AEM), Iamgold Stock (IAG) and Yamana Gold Stock (AUY in New York and YRI in Toronto). Barrick stock moved up 1.9% on the announcement.
Other Economic News for Oct 21 2013
Unemployment and Fed Tapering
Tuesday we get the employment report for September. I am not expecting it to be a big event, but I do think it could give some clues as to how soon the Fed could begin scaling back the Quantitative Easing program it is currently engaged in.
McDonalds Stock (MCD) Revenue and Earnings
McDonalds Stock fell today when its earnings of $7.32 missed expectations of $7.33 billion. As well the CEO called the economic environment challenging which many analysts are interpreting as a sign of a global slow down. The CEO went on to warn that next quarter could continue this trend.
The stock is trading right around longer term support for this year which sits at $95.00. For much of the year $95 was support as you can see in the chart below. Each drop to $95 made for easy income from Put Selling. Since late summer though that has changed with the stock having trouble staying above $95. It would appear that $95 is becoming resistance. I am currently hold puts at $92.50, but I am ready to roll down to $90 where the next level of light support is in the stock. I have also reduced the number of naked puts to keep my exposure smaller just in case. For long-term stock holders, this weakness in McDonalds Stock is excellent for considering selling out of the money covered calls but be careful and close early when there is a decent profit. Remember that big cap stocks that are under pressure can respond to a push lower by a nice rally right back up despite concerns over earnings. With a stock like McDonalds Stock at present I believe closing winning trades early when the profits are decent or when the signals appear to tell you that the trade could turn against you, is the strategy to employ. I am not expecting volatility to diminish for the time being in McDonalds Stock.
Netflix Stock (NFLX)
Investors who follow my blog know that I do not trade in Netflix Stock. I do though keep an eye on it out of interest. Earnings came out today and were better than estimates by 3 cents a share. It also beat on revenue and its shares were up over 7% in after hours trading. It has had an incredible rise but it doesn’t meet my criteria. The stock trades at 417.6 times PE. Book value is $13.40 and profit margin is razor thin at 1.21%. Definitely this stock is not for me, but I get emails each week from investors who are busy Put Selling it. I can’t really offer any advice because there is very little support in the stock at such elevated levels.
Crude Oil and Exxon Stock (XOM)
Crude oil fell $1.59 to $99.22 a barrel which is the lowest level since July 1. Supplies are rising and demand is falling lower. My favorite large cap oil and gas stock is Exxon Stock. Exxon stock is trading near its 52 week lows around the $85 level. Recently the stock took off again but today’s crude oil price decline looks to have ended the latest rally. I am still Put Selling at the $82.50 level but for most of the year it was the $85 level. Oil continues to look weak but I still think $82.50 is a great spot for Put Selling Exxon stock on every pull back down toward $85.00. 
Market Direction S&P 500 Intraday For Oct 21 2013
The intraday 1 minute chart for the S&P 500 points once again to the return of the same repeat pattern of weakness in the morning and then a rally into the lunch hour. The early morning saw the S&P make a new all-time intraday high of $1747.79 before selling back lower. The late afternoon saw the market direction push lower and actually move down to $1740.67 as the overbought nature of the market made pushing stocks higher difficult. The old pattern of higher lows emerged though and the S&P 500 market direction ended pretty well neutral with a very slight gain on the day.
Advance Declines For Oct 21 2013
Advancing issues actually had trouble today with 47% of stock advancing and 50% declining. Still though the number of new highs at 359 squashed new lows which were at 75. These new high numbers cannot keep popping up with the market direction softening. A rest like today is needed.
Market Direction Closing For Oct 21 2013
The S&P 500 closed at 1,744.66 up 0.16 and into another new record high. The Dow closed at 15,392.20 down 7.45. The NASDAQ closed at 3,920.05 up 5.77 which marked another new 13 year high. IWM ETF closed down just 0.20% at $110.47.
Market Direction Technical Indicators At The Close of Oct 21 2013
Let’s review the market direction technical indicators at the close of Oct 21 2013 on the S&P 500 and view the market direction outlook for Oct 22 2013.
For Momentum I am using the 10 period. Momentum continued to push higher today deeper into positive territory despite the overbought condition.
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 Oct 14 and today MACD continues to climb higher.
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 overbought. Today’s sideways action has helped relieve a small amount of pressure but the market direction still is heavily overbought.
Rate Of Change is set for a 21 period. The Rate Of Change continued positive today and climbed even higher as still more investors were buying on today’s weakness.
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 up. The Slow Stochastic is extremely 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 for tomorrow is also up and it is extremely overbought as well.
Market Direction Outlook And Strategy for Oct 22 2013
The market direction technical indicators are clearly signaling that the markets will move higher. The overbought nature of the market direction is keeping a lid on things at present but even today’s sideways action has helped to relieve some of the pressure. Investors are convinced that stocks are moving higher. As such they are taking advantage of days like today when the market dips a bit, to buy stocks that pull back. McDonalds Stock is a good example today of a stock that announced a reduced earnings for the quarter and a reduced outlook for the next quarter. The stock sold off but was quickly bought by investors. Another good example is YUM Stock which has very poor results in the latest quarter and yet it bottomed a few days ago and is back climbing. Even poor IBM which has had a string of bad quarters has investors buying expecting a rebound in the stock. Today it closed lower at $172.86 but still off the lows for the day. These are just a handful of stocks that have released poor revenue and/or earnings numbers in the latest quarter and investors are picking up their stocks at what they consider cheap prices.
For tomorrow then I am staying the course with my Put Selling and continuing to look for further opportunities. The market direction is still overbought but days like today are giving investors a chance to buy more stocks and that is what they are doing. This is keeping the market steady. The next move appears to be back to higher. For tomorrow then I think we will see more sideways action but a higher close in all 3 market indexes by the end of the day.
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