Market Timing / Market Direction – Morning Comment For Dec 9

While my market timing indicators are struggling this morning to reflect that the market direction could indeed continue up, they are instead indicating that the rally this morning may not hold.

I am posting this at noon as I believe the rally is not for buying, but for selling into until market timing tools confirm the market direction change back to up.

This morning’s rally is a combination of a reaction to the EU flawed announcement and the bounce from yesterday’s pullback. It is important to understand that leaving market timing indicators aside, when a market has been in an uptrend and suddenly it pulls back with strength and magnitude such as yesterday, there is almost always a decent bounce the next day simply because it was such a sharp sell-off, but also because the market in general was in an uptrend.

Investors are always hoping that the market will move higher. It is a natural desire on their part, as investors are trained to believe that stocks move higher and then you sell for a profit. Investors are not trained to make profits no matter what market direction is occurring. Therefore rallies are bought into by investors as they always want to believe that a crisis has been averted and better times lie ahead.

The EU agreement is badly flawed and I do believe this will come to the forefront shortly. The ability of national cental banks to purchase their own securities is basically an attempt to circumvent the European Central Bank’s authority and decision not to print money. By allowing national central banks to basically print their own currencies, this will leave the Euro as a central currency, pointless for investors. Therefore who would invest in any bonds of any European government. The UK can see this and I believe analysts will shortly.

I am just a small investor but when politicians seize an opportunity to not do the right thing, but instead decide to protect their little kingdoms at the expense of a much bigger picture, even I can see the writing on the wall.

Market Timing / Market Direction at Noon On Dec 9 2011

All my market timing indicators refuse to support this rally. Here are the 4 main market timing readings at noon. Slow Stochastics (the first market timing indicator in the image below) has moved lower to a reading of 87.12. The Ultimate Oscillator (second market timing indicator in the chart below) at 46.73 has fallen from yesterday’s 52.81. MACD (third market timing indicator in the chart) which is often the most telling during a rally, has turned lower at 4.10 from yesterday’s 4.25 and the rate of change (the bottom market timing indicator in the chart below) at 4.88 is up from yesterday’s 1.54, but this is understandable as the rate of change is telling us that right now the market thinks this is a move higher. However I believe by the close of the day the rate of change will be lower than 4.88, which should confirm that this is nothing more than a bounce and gut reaction to the EU meeting. To understand rate of change, select this market timing indicator. It is important to understand that the rate of change is a momentum indicator. It is a great market timing tool that is often used for day trading in indices or individual stocks because it follows momentum or trend.

The rate of change market timing indicator is therefore telling us that right now momentum is positive, which it is. If at the end of the day the Rate Of Change indicator is higher than 4.88, then the rally could last more than one day.

Market Timing / Market Direction at noon on Dec 9 2011

Market timing indicators at noon on Dec 9 2011 are not supporting this move higher. They are overall bearish.

Market Timing / Market Direction At Noon Dec 9 Summation

I wrote this article at noon on December 9 2011 to advise my readers that I am not buying into this rally and I do not believe the market will move higher until all the market timing indicators change and move higher signaling market direction still up.

This is why for so many years I have steered away from trying to pick stocks for quick bounces. Every investor should develop strategies that they are comfortable with and which they consistently profit from. Mine are selling options strategies and this market since May has proved to me that selling options remains my method of profit and portfolio growth. Through such options I do not need to be as concerned about getting market direction right all the time.

I believe this will end up being a one day rally. Unless market timing indicators can turn higher than they were on Wednesday, the rall will fail and analysts will pick apart the EU meeting and realize the folly of what has been decided by Europe’s politicians. It is important to realize that with market timing indicators refusing to support the move back up today, they are warning that the rally is suspect and market direction has probably not changed from lower.