Market Direction Is At Point of Change

Market Direction is starting to reach the point of change. Unless something happens soon the short-term market direction is going to move back to down and I will be looking for opportunities to use my SPY PUT hedge particularly if volatility moves up.

The first market timing technical indicator that is signaling market direction is turning down is the Fast Stochastic. It is bearish at the close of today.  US Manufacturing activity was just below expansion at a freaking of 49.8. This is the second month below 50. You can see from this number why analysts are having a hard time calling for a recession. The reading is almost neutral rather than down or up. However construction spending rose in June  and the ADP report on private sector employment showed job gains in July of 163,000 which is above expectations. It should be interesting to see the payroll numbers on Friday.

Market Direction Treading Water

With market direction eroding slowly each day, the VIX Index is also climbing each day. Today saw a VIX reading of 19.18 before it closed at 18.96 for the day. While the market direction up seems to still be in tact, the VIX is signaling that investors are starting to worry. The problem is that the big jump last week was primarily built on an oversold condition, comments by the ECB and the belief by investors that the Fed must act soon.

VIX Index Reading

The VIX Index Reading is climbing as market direction is floundering.

By while the market direction is floundering, the market timing technical indicators for the past three sessions have supported the market direction jump to a new higher high. Right now though the market timing indicators are starting to turn down.

Market Timing Indicators For August  1 2012

The market timing indicators for today are beginning to show a few breaks. Momentum has turned to neutral. MACD which supported the rally and still does, is today turning lower. The Ultimate Oscillator is no longer overbought and is pulling back. At a reading of 60.57 it is still positive.

Rate of Change has turned negative, but again, it interprets what is happening presently and right now the market is having trouble grinding higher and the rate of change reflects this, but today it turned negative.

Slow Stochastic is neutral to bearish which means the market may not do much before Friday’s jobs numbers.

The Fast Stochastic though is bearish, indicating that tomorrow could see some additional selling.

Market Timing Technicals Aug 1 2012

Market Timing Technical Indicators for August 1 2012 are beginning to show a point of change in the market direction.

There is still strength in the above readings but the same level of strength from the previous 3 sessions is starting to fall away.

Market Direction Outlook

The S&P 500 is still hanging to the previous most recent high set on July 19 2012 of 1376.51. Today’s close was just short of that closing high. After three days of some selling the market is looking for a catalyst to push it higher. The selling in the past three sessions has been muted, particularly when compared to the past two pullbacks which you can see in the chart below. This is also a good sign that the uptrend still is intact. Tomorrow may see another down day but as long as it is small, then there should not be much change in readings.

Market Direction for Aug 1 2012

Market Direction still shows that the S&P is clinging to the previous most recent high.

Market Direction Summary

Stock markets are not rational. They are filled with emotional trading. It has always been this way. Investors are optimistic by nature yet worry about every issue and there is never a time when there have not been issues. Investors are forever fearful. They fear missing a rally and they fear being caught in a collapse. I believe selling options or trading options can reduce a lot of that fear.

The market direction up is still in tact, but if the market keeps floundering then the path of least resistance will be lower. In its statement, the Fed said that it would “provide additional accommodation as needed”. Analysts are looking at this statement as a clear sign that the Fed will act before the end of this year. I believe that will depend on two things, unemployment numbers and the Presidential election and if market direction is to continue higher, there must be investors willing to buy stocks at higher levels. Until then the strategy of buying favorite stocks on dips in market direction continues to be the best strategy for this market. How long that can last all depends on market direction and right now nothing indicates that the market direction trend of up and down then back up is going to change soon.