Market Timing / Market Direction Weakness As Expected

Market timing indicators from the past few sessions have all pointed to the rally stalling out. The weakness in the rally at this point should be understandable to every investor. As my market timing indicators, in particular the ultimate oscillator and the stochastic indicators, continually pointed to an overbought market.

Yesterday I read an article on Marketwatch where the author wrote about how they doubted the overbought indicators meant anything to the market direction which she wrote was in full steam ahead. I figured after reading her article that the market was now due for what my market timing indicators had shown as market “stalling”.

A few days of the market pulling back or going sideways is all it will take to work the overbought conditions out. Aside from market timing technical indicators, investors can also use the overall opening and closing of the indices to get a “feel” for market direction.

Market Timing / Market Direction Open Close Indicators

We all know that if a market opens lower and closes higher than market direction is up. That’s a pretty simple method of market timing. However by watching the open and close an investor can begin to understand market direction a lot better. Below are the past 10 days trading.

As a market timing method, we can start with Jan 11 2012 when the market did exactly what a bull market should do, it opened lower and closed higher. On that day I wrote “Market Timing / Market Direction Trend Intact But Watch Next Week“.

The following day, Jan 13 the market direction continued on the same path. S&P500 opened lower and closed higher. On that day I wrote “Market Timing / Market Direction Still Up“. In this article I wrote how the market direction was still up but warnings signs were beginning to appear.

On Friday Jan 13 the S&P opened with a strong move down as the S&P went lower than the previous two opens and the market closed LOWER than the open. This was the first sign that the market direction might be stalling. On the weekend I wrote “Market Timing / Market Direction Running Out Of Steam” in which I discussed the overbought indicators and how the market timing technicals were still flashing warnings.

On Monday Jan 17 the S&P500 opened high and closed higher BUT there has to be a follow through for the next day or two to confirm that the market is still moving up.

On Jan 18 the market opened higher but closed almost unchanged. This was the second warning that the market direction is about to change. On that day I wrote “Market Timing / Market Direction Is The Bear Hibernating” in which I discussed how the market timing indicators were not supporting the move higher but were also not falling either. This showed the indecision in the market but the clue is the market timing indicators were not moving higher.

From there you can see the remaining days in which the market is caught in a see-saw but overall the pressure is more to the downside. My last article was on Jan 23 when I wrote “Market Timing / Market Direction Best Rally On Low Volume“. Third clue, lack of investor participation since mid-December.

Market Timing / Market Direction for Jan 25 2012

Watching The Open and Close Can Be Used As A Market Timing Method to Determine Market Direction

Market Timing / Market Direction Summary For Jan 25 2012

There is no reason for a plunge in the market at this point. If the market churns sideways then the overbought condition will disappear and the market timing stochastic readings will move lower which could then assist to support the rally continuing. Select this market timing link to learn more about stochastic oscillators.

Stock Markets never straight up or down but there are many clues about overall investor sentiment and it is after all, emotion that drives the markets and FEAR not GREED is the biggest driver. Investors FEAR missing a rally and they FEAR being caught in a downturn. It is FEAR which pushes stock market direction to extremes, both up and down.

For myself I have sold my covered calls on my retirement portfolios and if the market moves higher I could be exercised out of some of my stocks or I could roll those covered calls further out in time. While many investors believe market timing technical indicators do not work, I am a firm believer that they do work, but that most investors fail to consistently follow them. I have used market timing indicators since the 1970’s and a number of new market timing indicators have been introduced since then that assist enormously in plotting market direction. It was market timing indicators that warned me about the 2007 top and subsequent market direction crash and it was market timing indicators that flashed buy signals in later 2008 and again in mid-March 2009.

Nothing is perfect, and market timing indicators can be wrong but in general I have found that overall they assist my style of investing and I find comfort in having market timing indicators that can confirm my market direction suspicions.