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Stock And Option – Intraday Comments For Nov 19 2012

Nov 19, 2012 | Stock Market Outlook

Today’s market direction bounce is certainly long overdue. The question now for market direction is can this bounce last. I would expect the market to hang on to most of today’s gains going into the close but tomorrow possibly see some selling. How high this rally can go is definitely questionable. Originally I thought the S&P and Dow could possibly rally back to their 50 period moving averages but that likelihood seems a bit remote now with such a large jump open.

Historically market direction rallies with lasting power start slowly and build smaller new highs daily and then bounce higher on bigger volume. Markets that turn around and bounce big after selling are normally bounces and nothing more. Today’s action while exciting, lends more toward the side of a short quick bounce and then more selling.

S&P 500 Market Direction Outlook Intraday

The chart below is from around 1:30 on November 19. Studying market direction is not difficult which is why computer programs and algorithms have been built around the stock market trends. Today was a big gap open. This open pushed the S&P 500 back to the 200 day moving average which immediately makes the most previous low key. I have marked that low from Nov 16 which was at 1343.35. That now becomes the low that must hold for the market direction to change back to up.

If we look back at the rally off the June 4 low, you can see a big open on the day of the market direction recovery and then a rally that lasted 10 trading sessions before the next drop came. But that drop showed a higher low and so the market direction continued higher.

When trading in this market it is important to look for this same pattern and forget all the media pundits and their opinions. Instead stay with the chart.

The market sold off down to below the 200 day moving average. In order for the rally to have any legs it must repeat exactly what happened off the June 4 lows. There must be a push higher and even if there is some selling over the next few days, as long as the market hangs on to most of today’s gains that is all that will be needed to move higher.

But when the market pulls back just like after the June 4 low, as long as the market does not sell below the 1343.35 level, then the rally should have the ability to move higher.

Market Direction Outlook Intraday

S&P Market Direction Outlook Intraday

My personal opinion and those of others is unimportant at this stage of the rally back. Every sign pointed to a bounce back and has for a few trading sessions now. The push back to the 200 day is a good sign but the next test is where does the market direction close later today and then into tomorrow.

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