Market Timing / Market Direction Trend Intact But Watch Next Week

Market timing technical indicators two days ago showed weakness starting to move into the market, but as long as the market stays above the 50 day Simple Moving Average, the market direction trend up remains intact. Part of the reason for the continued strength is the lack of bad news out of Europe. There is also a growing sense among many investors that the economy is doing better than first believed. In Canada for example, freight shipments via trains was up substantially in the final quarter, defying projections of economic weakness.

The S&P 500 today touched a high that surpassed the Oct high. The rally which some investors are beginning to question shows little sign of stalling out, but there are still a few things to keep an eye on.

Market Timing Indicators To Watch

The 50 day moving average  is above the 200 and 100 day moving averages but it is moving sideways despite the past two days being up. As well the 100 day market timing indicator is still below  the 200 day. On last Friday the candlestick confirmed a market sell and then yesterday turned back to a confirmed buy. Today the candlestick was a white spinning top which shows indecision in the market.

S&P 500 for Jan 11 2012

S&P 500 for Jan 11 2012

 Market Timing / Market Direction Technical Indicators For Jan 11 2012

The Ultimate Oscillator remains in overbought territory, but a strong market can remain overbought for some time, which is a good sign in most markets. Meanwhile if the market trends sideways for a bit than the overbought condition will be relieved making a rise higher easier for the markets.

Meanwhile all my other market timing indicators are not wildly bullish but they are staying strong aside from Momentum which despite the past two days rise is turning down showing the concern investors have as the market keeps rising.

MACD is still indicating market direction still up but only somewhat. The market timing indicator Rate Of Change has turned back up in the past two sessions which is confirmed by the fast and slow stochastics. 

S&P 500 Market Timing Technicals

S&P 500 Market Timing Technicals for Jan 11 12

 Market Timing Summary For Jan 11 2012

A couple of interesting points about the market for January. First, it is important to remember that many investors and many analysts and the talking heads on the Financial Networks all forecast a poor January. Contrary, the market has had a pretty good January which again tells investors that when things look poor, those of us who sell options for a living can reap big gains by staying in a highly volatile bear market. Instead we can profit by ignoring the news and use market timing indicators for market direction.

Second, according to the Traders Almanac, which is not a market timing tool, January often sets the tone for the year, but often some of the year’s best gains are made in January. Therefore I plan to continue with the cautious bull strategy. It would be great for markets to move higher or even to challenge and break the highs of 2011, but I believe many large cap stocks are already over-valued. As such I think any attempt this year to make new highs beyond 2011, will have to come from other market sectors. Select this market timing link to read further about the so-called January effect in stocks.

Third, Traders Almanac indicates that the first trading day of January options expiry week has been up 14 of the last 19 years, but the overall options expiration week has been down 9 of the last 13 years. While these are just statistics the downturn during options expiration week is understandable considering how often the first couple of weeks in January have been up.

My own experience has been that January options expiration week has been poor and in my own historic market direction and market timing charts it has been down a lot more than it has been up and down hard.

But there are other non-market timing technical indicators. Companies like Microsoft have announced cut backs in employees which is not indicative of falling unemployment and a decent economy. Statistics on the number of Americans who have dropped out of unemployment has remained stubbornly high over the past two years meaning that unemployment is higher than reported and staying high. High unemployment cannot lead to a better economy. As well analysts have reduced many of their projections for earnings this quarter and yet despite this a number of companies are expected to still surprise to the downside. 

All lot of indicators have me believing we are not out of the woods and probably won’t be for years to come.

With German bonds being picked up at negative interest rates today and US treasuries being snapped up quickly, it shows that many investors are refusing to believe that stocks have much room to move up. Indeed among my own local investing group they remain quite bearish.

Those signs have always told me that the market may surprise with some strength going into the end of the month. Therefore is next weeks the market is pressured it could push volatility up and make put selling decent for February. But aside from this, if the market remains higher, volatility will fall and it will become more difficult to earn large put premiums on many stocks.

My strategy remains the cautious bull. For stocks I want to hold long-term I am still holding in the money calls and as they move higher I have rolled those calls up just a strike or two as I plan to stay well protected throughout the year. For put selling I am still staying out of the money and will remain as such until my market timing indicators can guarantee that for the next few months at least the market direction is solidly back up.

  • PietrusikTanyon

    thanks. could you give an example of the strategy of owning in the money calls and then rolling them up to higher strikes. if its already on your website .please let me know where..i’ll read it there. i’d like to see this strategy in action………………..thanks teddi

  • That will take a few articles because it all depends on the stock and the outlook of the investor. There are a number of strategies to consider for rolling call options higher. I will see what I can do in the future.

  • That will take a few articles because it all depends on the stock and the outlook of the investor. There are a number of strategies to consider for rolling call options higher. I will see what I can do in the future.