Market Direction Remains Clinging To 1300 Level of Support But Bias Is Down

Market direction today did not meet my market timing indicators expectations from yesterday, for a continuation of Tuesday’s move higher. Yesterday’s push up in market direction was obviously brought about by investors’ expectations of more involvement in the markets from the Federal Reserve. The Federal Reserve has since 2009 been propping up the stock markets but it is increasingly worrisome that Fed Efforts have not reduced unemployment more or put a floor under US Housing. Meanwhile in Canada today Banks announced that they will be doing on-site inspection of properties to determine mortgage levels as so many Canadians are over-leveraged against housing prices. Should interest rates rise or unemployment rise many Canadians may find themselves in trouble with their mortgages. Unlike our neighbours in the US, Canadians cannot just walk around from mortgage debt.

Market Direction Action Today

Market direction action today was interesting. The S&P 500 opened slightly lower, then rallied 4 times but could not get any conviction among investors. No one wants to be holding stocks higher than at present levels. The last two hours saw renewed selling and market direction turned bearish as the S&P closed at 1314.88 for the day.

Market Direction For The S&P April - June 13 2012

Today's market action shows the market direction still flirting with the 200 day moving average. This is not much of a rally and it will not last long at this level. The easier market direction is down.

Short-term Market Direction Looks Poor Going Forward

Short-term stock market direction looks poor at best. Friday is triple witching Day in which the Dow has been down 7 of the last 13 years with an average loss of half a percent. Meanwhile next week the Dow has been down 12 years in a row with an average loss of 1.3%.

Market Timing Indicators Are Mixed On Market Direction

My market timing indicators are showing a mixed outlook for tomorrow and Friday, options expiration day. Momentum surprisingly is back positive today despite the selling in the last two hours of the day.

The MACD Histogram did not rise today but stayed flat for the day.

The Ultimate Oscillator which many readers know is a favorite market timing tool, went negative today with a reading of 48.12.

Rate of Change is still positive but just like the market, it is just hanging on.

Slow Stochastic though is showing a market direction down with %K at 71.61 and %D at 73.65. The readings are so close reflecting the hesitation of investors. Investors don’t want to buy more at this level but they also don’t want to sell their stocks here either.

The Fast Stochastic is turning down but remains positive.

Market Direction outlook as of the close of market on June 13 2012

Market timing indicators are showing a mixed outlook for market direction

Market Direction Consensus From Market Timing

There are two indicators clinging to positive and two indicators turning back down. There are two indicators that are negative. The result is a mixed outlook but the bias is to the downside for market direction.

Market Direction Outlook Is Poor

Market direction outlook remains poor. The last two rallies in the market have been primarily a result of hope on the part of investors that the Federal Reserve will intervene and pump in more money. But the European Debt Crisis is not something the US can resolve and pumping in more money into the economy may not be the best course of action. Private companies need to hire more people and housing prices need to bottom.

The S&P 500 is continually retesting support around the 1300 level. This cannot last much longer and the easier market direction is lower. It will not take much to break support at 1300 and fall to 1275 or 1266 the recent low for a retest of that low. On June 6 I wrote how my market timing indicators were showing a good chance that the rally would fail and the S&P would retest the lows made on June 4. That may still be in the cards.

Market direction remains dicey at best and caution against put selling into this market is warranted once again. If however the Federal Reserve does act or Europe finally agrees to common bonds (which is very unlikely), the market could rally nicely from here, so selling naked calls is also not a great idea at this point in the correction. Instead I am taking profits through buying to close previously sold puts to raise more cash while waiting for the market direction to either move higher or pull back.