Market Direction Shows Stress Of Overbought Condition

Market Direction today shows the headwinds facing the stock market at present. The S&P 500 is starting to flatten out here as it has reached stiff resistance when the market direction pushes it toward 1407. While there is no sign of much selling today, the weakness later in the afternoon may have some investors concerned. Today for the first time there was no dip buying until just at the close. This marks the first time in 7 sessions that the dip buying has not stepped in and pushed the market direction back up. Part of the reason today for this lack of dip buying is the S&P itself which did not fall much during the day which made dip buying pretty much a fruitless endeavor.

Market Direction Chart For August 14 2012

The S&P 500 market direction chart for today shows the stress the market is under. The news in the morning saw a quick jump and then the market direction continued to climb right into the lunch hour. From there the rally became a lot softer and then with less than half an hour into the close sellers took control. The S&P is hanging just above 1400. If it breaks through 1400, as long as it stays between 1390 to 1395 the recent rally will remain intact.

Market Direction for August 14 2012

The Market Direction for August 14 2012 shows the stress the market is under at present levels.

Part of the reason for this is the flattening of the market direction over the last few days as the stock market is starting to tread sideways as the extreme overbought condition is putting pressure on stocks. As stocks are stalling here, many investors are selectively selling.

Market Direction Flat

Market Direction over the last few trading sessions while still higher is turning more towards flattening out than climbing.

Market Direction Remains Overbought

Even upbeat US Retail sales in July and better than expected growth in Germany and France could not overcome the overbought condition the market is presently in. While companies like Agrium and Estee Lauder had excellent news and indeed Estee Lauder jumped 9.3% on better than expected earnings, Groupon stock fell 27 percent on quarterly revenue that missed earnings.

The drop in Groupon Stock is going to hurt Facebook Stock and could pullback Technology stocks a bit from their recent run up.

Let’s look at the market timing technical indicators from today’s close.

Market Timing Technical Indicators

In general the indicators are showing overbought conditions throughout almost all the market timing technical indicators.

Momentum is rising from yesterday as is Rate of Change, but MACD is declining from yesterday. MACD histogram is an excellent timing indicator and as it continues to decline it could be telling us that the market direction is going to change to down for a few days.

The Ultimate Oscillator is still overbought.

The most interesting market timing technical indicators again are the Slow and Fast Stochastic indicators.

The Slow Stochastic is extremely overbought and is showing that the market direction will probably turn sideways for a few more days yet.

The Fast Stochastic however is now showing bearish readings which indicates that tomorrow or Thursday there should be more selling in the stock market.

Market Timing Technical Indicators

Market Timing Technical Indicators are showing the stress of overbought conditions.


Candlestick Chart Analysis

Of interest to those who follow Candlestick Chart Analysis, there has been no buy reading from the candlestick technical analysis throughout this rally. Even today’s candlestick which was a black spinning top, shows indecision in the market direction. The last candlestick technical chart signal was a sell signal on July 31. Interestingly that signal remains and no buy signal has been generated to cancel the July 31 sell signal.

Market Direction Outlook

The market timing technical indicators consensus is the market is now so overbought that it must pullback to consolidate before it can push any higher. Interestingly the market direction does not show signs of anything major in the way of a decline, just a pullback for a few days.

I took advantage of today’s selling in YUM Stock and I sold 5 naked puts for September at the $62.50 put strike for .79 cents. That has been my only trade but if the stock market direction should change to down for a few days heading into options expiry on Friday, this will make for excellent Put Selling opportunities for September.