Market Direction Remains Down Despite A Chance For A Weak Bounce

Market direction is always the most important aspect of investing, whether you are a long-term or short-term investor. The market direction mid-term is bearish and has been since MACD gave a market down call back in early April. What I am looking at is short-term market direction to profit through spy put trades and build my spy put cash cushion larger in the event things get a lot nastier.

Today’s market direction plunge was actually more a gap down and then no buying interest as the market treaded water until late in the day when a small rally was attempted before the market sold off into the close.

I want to thank all those who emailed me as they profited from my Friday market direction and market timing call and bought SPY PUT contracts on Friday. It’s always great when a trade works out like clock work. But it is important to remember that holding spy puts over a weekend is not the easiest of trades and things can change dramatically over a weekend.

Today’s market direction show that buyers are becoming disinterested and concerned. Stocks that investors have made profits in are starting to be dumped. Intel Stock is a prime example. Yesterday the stock closed at $26.94. Today it fell to $25.88 before recovering slightly to $26.05.  This marks a plunge of 3.9% to today’s low. Investors are wanting out to try to save what profits if any they have left.

Market Direction Action For June 25 2012

Market Direction for June 25 2012

The market direction today was all down. Where are the buyers? They are nibbling down at support.

Looking at today’s S&P 500 chart you can see that after the gap down there was literally no interest to buy and push stocks back up. Buyers are sitting at the support levels and nibbling but they are determined they are not going to get caught a second time in any suspect rally. The last rally caught a lot of investors, professional and retail alike. If support should break here, which I believe it will, the buyers will immediately fall away and wait until 1300 to see who’s buying first.

Where Is Market Direction Heading?

Market Direction outlook

Here is my market direction outlook based on the correction and the first leg down.

The 3 months S&P 500 chart below shows that market direction is continuing to be under pressure. Overall the S&P 500 is not down that much from April’s high. But on the negative side this means that there is plenty of room for the S&P to fall a lot lower. Today the market closed at near the low for the day. The S&P 500 is now setting itself up to retest 1300 unless buyers can push the market higher and set up a new line of support.

But to do this there has to be fundamentally sound reasons to invest in stocks at these levels and with stocks (whether you believe it or not) overvalued there are only a few things that can drive stocks higher. These include the Fed pumping in more money, Europe solving its debt crisis, unemployment falling, China revising its growth back up or earnings growing even more than last quarter. How many of these things are going to happen short-term? My guess is probably none so why buy stocks here when they will most certainly be lower down the road.

Market Timing Technical Indicators For June 25

Market timing technical indicators at today’s close are no more bullish than they were at Thursday’s or Friday’s close.

Market Timing Indicators For June 25 2012

Market timing indicators continue to show market direction is lower.

Surprisingly despite the selling today, momentum is clinging to positive. It’s barely positive but it shows there is a small amount of support still in the market.

The MACD Histogram is contracting even further today and is warning about further erosion of the S&P.

The Ultimate Oscillator is near oversold with a reading of 43.10. That reading though is not below 30 which marks a strong chance of a decent bounce so even if the market should bounce tomorrow the Ultimate Oscillator is advising that lower levels lie ahead for the S&P.

Rate of Change has turned negative.

The most bearish though as the two stochastics. Slow Stochastic is advising that lower lows lie ahead and fast stochastic is indicating that we could see more selling as early as tomorrow or Wednesday.

Market Direction Outlook From Market Timing Indicators

The market direction continues to be lower. The market timing indicators are in general agreement that there is a good chance for this market to fall next to around 1300 and test support there. I believe overall the market will retest the recent lows of 1267. There is enough pessimism to see a bounce, but it won’t be anything to get excited about. There has to be solid reasons for the market direction to change back to up and at this point in the correction I don’t see any. My SPY PUT trade will probably be active again tomorrow or Wednesday as market direction remains under pressure.