Market Direction Stuck In A Pressure Cooker

In yesterday’s Market Direction outlook I discussed the weakness in stocks and how I expected Monday or Tuesday to be weak. I did not expect further deterioration out of Spain to cause such a plunge. The market direction going into Tuesday remains bearish and more market timing indicators are turning bearish after today’s sell off.

No SPY PUT Trade

There was no opportunity for a SPY {PUT Trade of any sizable profit. If you look at the S&P 500 chart for today you can see that the market gaped down at the open and set the low for the day at the open. From there the market direction was up all day.

I posted to my twitter account that if I did do any SPY PUT trade it would not be held overnight. Normally a big down day like the morning’s open is met with a bounce on the next day. However the market showed resilience as it climbed all day.

I watched for a 2:30 pm reversal which is quite common over the past several years, but the reversal was short and had little push to the downside. The market direction all day then was up. This is not the kind of day to be buying Spy Put Options for a trade.

Market Direction for July 23 2012

Market Direction was up all day after the morning plunge.

Market Direction Up

The strength exhibited by the markets after the plunge at the open, is not unexpected. There is a lot of bullish sentiment still with stocks. Presently many analysts and investors believe that within a few short weeks European leaders will be forced to follow the Federal Reserve’s lead and reduce interest rates to zero and print Euros. Fear of inflation among European leaders is high, but fear of a general stock market collapse and high unemployment is greater. If Europe should recapitalize their faltering banks you can expect the Euro to soar and the US Dollar to pull back. This will push US Stocks higher. That’s one theory any way.

But if the market direction continues lower and breaks 1325 I am anticipating that the recent rally is over and I will reassess market direction at that point.

Put Selling Small Quantities

Just to be conservative I am Put Selling just small quantities of put contracts on my stocks until the market direction is firmed up. I will be Put Selling in groups of 5 put options at a time.

Market Timing Indicators

The market timing indicators are turning bearish which is to be expected after such a down day.

Momentum which was still positive is now negative.

MACD Histogram is still positive but the divergence is continuing to erode. Another down day will turn this indicator negative.

The Ultimate Oscillator did not tumble too far today thanks primarily to the market direction moving higher all day after the opening plunge. The Ultimate Oscillator remains positive but is down slightly from Friday’s close.

Rate Of Change is still positive and like the Ultimate Oscillator, it is lower today but only slightly reflecting the rise of stocks during the day.

However the Slow Stochastic is solidly bearish. This means more than a day or two out that the market direction is being predicted as down.

The Fast Stochastic though is the most telling at this point. It is decidedly bearish with a %D at 81.37. Tomorrow should be another down day.


Market Timing Indicator for July 23 2012

Market Timing Indicators are turning bearish after the stock market's opening plunge. Market Direction is under pressure.

Market Direction / Market Timing Summary For July 23 2012

The VIX Index had a huge giant today, yet as the stock market climbed throughout the day the VIX Index pulled back. It closed far off the highs for the day but still up over 14% from Friday’s close. There is a lot of complacency among investors would could be a bad thing for stocks and market direction moving higher.

Three market timing indicators are bearish, but even the positive indicators are falling. At this point in market timing, the Fast Stochastic and Slow Stochastic are playing an important role in advising investors what to expect next. Both are indicating that market direction is down.