Market direction today was interesting as by the end of the day we arrived where we were on Friday. On Friday June 8 we closed at 1325.66 and today we closed at 1324.18. There are some strong market timing indicators at work throughout today.
1) The 200 Day Moving Average was breached yesterday and today the market pulled back above it and closed above it.
2) The market on Friday closed with strong Market Timing Indicators pointing to a rally in the works. That rally could be still in play for Wednesday or Thursday particularly based on the fast stochastic reading from today.
3) It is important to understand that even with today’s action, we have spent two days going nowhere. Meanwhile though the overall trend has been down since April. As an investor we must always be aware that the mid-term trend is down until that finally changes. Therefore we have to expect whipsaws and volatile days and profit from them.
Market Direction over the past two days has basically brought the S&P back to Friday's close. While this whipsawing annoys investors, it provides profitable opportunities for traders.
4) MACD (Moving Average Convergence / Divergence) today continued to climb. It was the only market timing indicator yesterday to point to strength in the market as despite yesterday’s selling it still closed higher. That said, MACD has not given an all clear signal. When MACD turned negative back in April, that mid-term trend is still intact. The recent buy signal generated by MACD is for a market direction move higher, not for a change in the overall trend. The market has to recover a lot of ground before MACD will give another mid-term buy signal.
5) The S&P 500 holding above 1300 is a very important signal. As long as the S&P 500 can hold the 1300 level there is no question that the bull market direction is still with stocks.
6) The European situation is bound to create problems for the market direction and for market timing indicators in general. Market timing indicators cannot account for Europe’s constant crisis and investors’ worries. Investors being positive one minute and then fearful the next, is not what market timing indicators can account for. But it is this whipsawing that keeps option premiums up which is what I as an investor want.
The above 6 points are important to remember when trading options in this market or any market that is in a correction stage. The purpose of staying within a market that is in a correction is to profit from the higher volatility.
Market Timing Indicators Forecast Of Market Direction
It will take more than one day’s turn around to change all the market timing indicators into believers that the market direction is going to move higher, but there are some encouraging signals.
Momentum is unchanged from yesterday and still below 100 but barely.
One of the best market timing indicators is MACD because it follows it is a momentum and oscillator indicator in one. On Thursday when MACD gave a short-term buy signal, it never wavered on Monday despite the selling. Each day the divergence has risen and today’s reading is indicating that the market direction is still up.
The Ultimate Oscillator is up just slightly over yesterday which continues to indicate that the S&P 500 should move higher from here.
Rate Of Change went positive on Friday and negative yesterday. Today it is positive again. The readings from the Rate Of Change indicator are poor for whipsaw periods. The rate of change as a market timing indicator is better for longer period such as a month or more.
Yesterday Slow Stochastic was still positive but was in overbought territory. Today it is still in overbought territory and moving higher. As the slow stochastic predicts more than a couple of days into the future, the overbought condition is a good sign at this stage and the S&P 500 should move higher from Tuesday’s close.
Today the fast stochastic which yesterday had turned lower is up significantly today and now has just entered overbought territory. As the fast stochastic is a short-term market timing indicator we should see more pressure to the upside. The reading is strong indicating buying pressure is rising.
Market timing indicators are back climbing higher and fast stochastic in particular is flashing more upside ahead.
Market Direction and Market Timing Summary
For those candlestick market timing traders, candlestick timing yesterday gave a sell signal. Today the market formed a white candlestick which gave the S&P 500 a Wait signal.
On Friday market timing indicators all pointed to a stronger move higher. Monday did damage some of those indicators but three of these indicators refused yesterday to turn negative. They pointed to their being strength still in this market and MACD on its own has advised since Thursday of last week that the market direction is up. While I may have personal predictions, I prefer to consistently follow my market timing indicators and what they are telling me for market direction and today they are advising that the market direction is up and Monday was a bump in the road to higher stock prices.