Market Direction And The Price Of Oil

Market Direction today saw the results of the need for the market to rest. All three indexes were to the downside but in the last 25 minutes the markets rallied. The NASDAQ rallied more than the S&P 500 and the DOW. The NASDAQ rally though is not surprising as Apple closed at $699.78 and then after hours it closed at $701.90 setting another new high. Apple Stock is heavily weighted in the NASDAQ and because of this it tends to skew the Index somewhat.

Stock Market Direction And Oil

The big talk had to be the price of Oil which pulled back dramatically in the afternoon. The market direction followed the price of oil. The way the media talked though, you would have thought that oil had collapsed by $20.00 or more! Instead oil pulled back to $95.00 before closing at $96.62 a barrel down just $2.38. Did any of the analysts ponder that perhaps oil has been overbought for a number of days? This is why listening to the talking heads and market pundits is pointless for investors. In my opinion oil is overvalued and needs to pull back, but overall oil will probably try to test $100 sometime this year. I am not a commodity investor and my predictions for commodities are certainly not worth trading, but I could not believe all the articles discussing the collapse of oil like it meant the collapse of the economy and a plummet in overall stock market direction.

What was interesting was some of the stocks that fell today. Alcoa Stock fell 2.6 percent as did Bank Of America at 2.6 percent. Meanwhile Boeing Stock fell 1.9 percent and Facebook Stock which started the day higher, ended the day down 2.18%. RIMM Stock was down 4% while Sun Life Financial fell 2.69% and Manulife Financial fell 2.85%. Nucor Stock fell 2.2% after falling as low as $39.61 before closing at $39.85. But it is still above $38 and that’s important to my naked puts for Friday.

One last stock that I was watching was Clorox Stock (CLX). Clorox stock is a favorite of mine and today it fell to $69.67 before climbing back to close at $70.10. Meanwhile I sold 3 naked puts for January at $65 for .93 cents. I am hoping to sell more, particularly the October $67.50 but I would like to try to get better than 55 cents.

Market Direction Index Charts

Below are the three indexes from today. You can see that there are distinct similarities in market direction among all 3 stock market indexes.

Market Direction S&P 500

The S&P 500 tried to rally into the close

The S&P 500 above shows that the market was under pressure all day and then rallied in the last 25 minutes of trading.

Market Direction DOW

The Dow had the same market direction as the S&P including the rally in the last 25 minutes

Above is the DOW Jones chart for today which is an exact copy of the S&P 500.

Market Direction NASDAQ Chart

The NASDAQ though did not quite follow the other two indexes but the same rally occurred in the last 25 minutes

The final chart is for the NASDAQ. You can see that in the last 25 minutes the index rallied and regained almost the entire day’s loss. This rally into the close shows that dip buying is alive and well as traders are convinced that the market direction is not going to shift to a plunge any time soon. Most traders appear confident that the general direction is higher once the market consolidates from the recent run up.

Market Timing Technical Indicators

The market timing technical indicators are showing a pullback in underway today.

Momentum is slightly lower, but MACD is still climbing which adds credibility to the market moving higher soon.

The Ultimate Oscillator is higher today than on Friday and pushing back into an overbought condition.

Rate of Change is almost unchanged from Friday.

The Slow Stochastic is still overbought but signaling that the market direction is changing to down. Not too far down, but down.

The Fast Stochastic is in agreement and shows the same signal.

Market Timing Technical Indicators

Market timing indicators for Sept 17 2012 show market direction is in a pullback stage.

Market Direction Outlook For Tuesday Sep 18 2012

The market direction is under pressure but there are no indicators pointing to any major pullback. Everything still points to a consolidation and then a move higher in the overall market.

The drop in the price of oil in the afternoon was reflected in the stock markets in general as heavier selling entered as oil prices pulled back. Overall though I believe oil was simply overbought and needed to pull back. As is the case with the market direction, nothing can go up day after day. Oil had to pull back as is the stock market direction. This doesn’t mean the rally is ended, but it did catch analysts by surprise which I think is odd considering the market direction had already moved up significantly on the expectation of the Fed entering QE3. It is still a case of buy the rumor and sell the news. But with the Federal Reserve committed to low interest rates and determined to keep the economy afloat, I do believe any chance of a major stock market direction sell off is at present, limited.

As long as the dip buying continues then the market pullback will not be severe.

I will be continuing with my Put Selling strategy as I watch my favorite stocks for opportunities.

It should be interesting going into the rest of this week as options expire on Friday. Right now the outlook is for muted selling for a few more days, but the general trend is still up until there are clear signs that the market has topped and right now there are no such clear signals.