Market Timing / Market Direction Europe Sinks Rally, Again

Market timing indicators yesterday were upbeat except for the Ultimate Oscillator. The Ultimate Oscillator warned that the market direction could turn down. The problem is that Europe is not a market timing indicator. Lately it should be, but Europe is showing investors that political events have the largest bearing on risk assets, yet again.

Yesterday it appeared to investors that the ECB would buy bonds to support European nations, while today the ECB president indicated that is not the case at all. In fact he was puzzled by the market response yesterday and today.

It’s obvious that European leaders do not have a clue what in the world they are doing. European leaders have tried to solve their debt woes so many times that I doubt any of them can remember what their last idea was. If anything they are doing more harm to their economies than good. It was time to be decisive months ago. Europe has a long history of being unable to work together. This crisis is another example of their inability to see beyond their respective borders. It’s almost as if they hope someone else solves their dilemma. United States again anyone?

Market Timing Indicators For Tues to Thurs

Below are the market timing indicators for the past 3 sessions of the S&P 500. The first indicator, the slow stochastic is actually higher today despite the selling. The second market timing indicator below, the Ultimate Oscillator continues its decline warning that more selling is ahead.

MACD pulled back today with all the selling. It is confirming the Ultimate Oscillator’s indicator and warning that more downside lies ahead.

The last market timing indicator, the Rate Of Change is below Tuesday’s reading again indicating that the market direction is down. 

Market Timing / Market Direction for Dec 8 2011

Market Timing / Market Direction technical indicators for Dec 8 2011

Market Timing Indicators Warn Market Direction Is Changing

With three market timing indicators now confirming a change in market direction, it is up to the slow stochastic to change and all the indicators will be bearish again. So is the overall trend changing or is this just a short-term change in market direction? With the slow stochastic still up, perhaps there will be a bit of a rally tomorrow. This though would be typical after today’s fall as bargain hunters step into the market and short sellers buy back positions.

Where Could Market Direction Be Taking The S&P

With today’s selling the market has given back much of the past 5 trading sessions. This brings the S&P back to the “Line In The Sand” on the S&P, namely the 1200. The market could easily pull back to the 1200 and then rebound again. If though the 1200 breaks, I believe the market will fall back to the Nov 25 low around 1158.

Almost all of this now depends on Europe and this is why market timing indicators, just like investors, are having so much trouble. The market is being driven not by internals but by European influences as investor fear that Europe could get a lot worse which could bring the markets tumbling down.

Market Timing / Market Direction S&P Chart for Dec 8 2011

Market Timing / Market Direction S&P Chart for Dec 8 2011

 Whatever the case, this continues to be a terrific market for those of us who love selling option premiums. I have held in the money covered calls since August on many positions and despite all the volatility, they are working out just fine. My out of the money put selling is also working out fine and put premiums remain elevated making put selling a great strategy for these troubled times.

So while Europe is playing havoc with the market timing indicators the strategy of selling out of the money puts and in the money covered calls on quality companies continues to earn profits for my portfolio.

Market Timing / Market Direction Summary for Dec 8 2011 

The story remains exactly the same. Good news out of Europe will drive the market higher. Bad news is going to drive it lower. Put selling and in the money calls on quality large caps continue to do well while the market timing indicators do their best to predict the market direction while being constantly waylaid by European events.

Market timing indicators are saying that the market could rebound tomorrow or early next week but if nothing develops on the European front, then the market direction is down meaning more put selling opportunities lay ahead.