Market Timing / Market Direction Best Rally On Low Volume

Sometimes it isn’t only market timing technical indicators that an investor can use to determine the overall market direction in stocks. Other indicators include being aware of the social and political events surrounding the stock markets. While not true market timing indicators, these non-technical but fundamental indicators can assist in understanding market direction.

The stock markets have had their best rally since December and the S&P 500 has added 2.1 percent in the past 5 trading sessions. However trading volume is at the lowest level since 2008 and mutual fund companies are undergoing significant withdrawals. An average of just 6.69 billion shares have been traded over the past 50 days which is the lowest on record over the past 3 years.

Market Timing Indicator – Low Volume

While not a true market timing indicator, low volume does have a history of supporting rallies. Thinly traded markets have a tendency to rise higher than they normally would. This could explain the decent rally the markets have undergone. The lack of investor conviction in the market also tends to support moves higher.

Little Bearish News

There also has been a lack of bearish news which has assisted those traders in this rally.

European Influence

Despite the Greek “technical” default as they try to work out how many billions of dollars bond holders will lose, the impression that many investors have, aside from George Soros, is that Europe will weather their debt crisis and aside from Greece there will be no further defaults. Little has been said recently about Ireland which is in a terrible mess and will definitely see higher unemployment and no growth again in 2012. But as long as the news out of Europe is not “worse” it seems that investors are content to keep pushing stocks higher.

George Soros on the other hand is very bearish on the Euro and the European Debt Crisis in general. Perhaps he is short Euro bonds or the Euro and has been disappointed by the non-collapse of the Euro to date.

At any rate, market timing technical indicators are improving for European markets and the Euro VS the US Dollar.

Let’s look at today’s Market Timing Indicators and see what they are telling us about the market direction.

Market Timing / Market Direction For Jan 23 2012

Today market timing indicators are not changed much from Friday. The momentum market timing indicator remains stable but is not moving higher. Nonetheless this could be the result of the lack of buying I mentioned earlier.

MACD is grinding slowly higher but by very small degrees. But looking at the histogram, the rally has been a grinding process for many sessions now and the histogram still does not indicate any serious change in market direction yet.

The ultimate oscillator market timing tool is still overbought but not to a large degree and remember that overbought conditions can last a long time in a rally.

The rate of change is not overly bullish but it is not bearish either.

Finally the fast and slow stochastics are the two market timing indicators that right now are warning that the rally could be stalling out. Their readings are very high which in past rallies have been warning signs that the market direction is about to change. However markets can drift sideways for a number of sessions and low stochastic readings without the market direction actually tumbling.

Market Timing / Market Direction for Jan 23 2012

Market Timing / Market Direction Indicators for Jan 23 2012 still support the rally but continue to warn that the market could stall.

Market Timing / Market Direction Summary for Jan 23 2012

Overall, my market timing indicators are “grudgingly” supporting the rally, but the Ultimate Oscillator and in particular the Stochastics are clearly showing that the market rally could be stalling here. I realize that the market timing readings have been showing this “stalling” of the rally for a few trading sessions now and we have continued to move higher.

Personally I am only selling puts on stocks that have dips as I want to keep a lot of cash back for what I believe should be a pullback soon. However for my stocks in my RRSP, I have been slowly selling out of the money covered calls over the past few days. In my retirement account I can only sell covered calls not cash secured puts or puts of any manner as the Canadian Pension laws do not allow for the selling of puts or naked covered calls in a registered retirement savings plan (RRSP). While our American neighbors are far more progressive in their pension accounts, there isn’t much I can do about it, so I use covered calls.

I will post an article tomorrow on my covered calls strategy I have used this year with Royal Bank of Canada stock (RY Stock), in which I used my market timing indicators to plot times to buy stocks and sell covered calls.

I explained last week what I see as target areas for any market pullback. While right now it seems like the markets just want to keep climbing, my market timing indicators do not agree and continue to tell me that the market may be reaching a short-term top for a breather.

  • Chester the Income Investor

    thank you… i always look forward to your posts…i’ve been doing this long enough to appreciate that you know what you’re talking about

    chester the income investor