I don’t think any investor thought this morning would not see a sea of red in the heatmap of stocks trading this morning. The debt ceiling fiasco continues and really it is more about political posturing and Obamacare than anything else. The chance the United States will default on its debt over this is not going to happen, but the political infighting will be continuing. Neither side in the political arena seems able to actually ever work together. Both sides are deeply entrenched with only a handful of politicians in each party who seem intent on finding a solution.
Market Direction Heat Map
Here is this morning’s heat map at 11:00 AM. With only a mere handful of stocks in the green, investors are indeed nervous about the inability of either side to come to an agreement. Everyone knows that a resolution has to be found which is why the market direction this morning is not down as far as it could be. Investors hope that this is a temporary pullback based solely on the mood of politicians and nothing economic reasons.
Market Direction Intraday Sep 30 2013
The one minute chart below shows the market direction intraday. I did not have puts on the market direction from Friday. The market drop down at the open making a low of 15086.70 within a minute of opening. From there a rally was staged which saw the market direction push back up to first 15166.30 and then 15163.10. The course of the market direction this morning seems unable to sustain higher highs which means of course lower lows.
Market Direction and What To Watch
Without a resolution to the debt ceiling immediately in the works the market direction will continue lower. Here are the key components to the market direction that I am watching on the DOW. 15000 has been a tough valuation level for the Dow. You can see how it keeps revisiting this level. I am fairly confident the Dow will move lower again here and take out 15000.
You can see that with today’s action we are ready to break the 100 day exponential moving average (EMA). It won’t take much to push below it which will bring in more selling. Meanwhile the three points I am following are the past three market pullback lows. I have marked each below as A, B, and C.
Despite whatever analyst or investment newsletter you may be following, no one can tell with any degree of accuracy what the market direction may end up doing. The market has not corrected and set up a pattern of lower lows throughout 2013. If the market direction breaks below point C then the rest of the fall may see the market continue under pressure. Each successive break of a previous low such as B and then A, means more sellers will enter the markets and keep the market direction moving lower.
However I am not looking for a major sell-off down 25% or more. The Weekly Initial Unemployment Insurance Claims which is one of the best indicators of when a market direction is about to turn down, needs to be heading the other way. I have written all kinds of articles on the market timing system of the Weekly Initial Unemployment Insurance Claims. You can read a good review here or select Various Market Timing Systems to review various systems and a variety of articles on the Weekly Initial Unemployment Insurance Claims. If weekly claims start to rise then look for the market direction to correct deeper.
However the present market direction problem is all about the debt ceiling. A resolution will pull the market direction up but to recover and actually move higher, the next quarterly earnings which start in October are needed and they must be strong. September has been an exceptional month for gains. Now the gains need to be made through trades like the Spy Put Options used daily. This affords very good returns but is short-term and does not lock an investor into any kind of trade that will keep his capital tied up for more than a few hours to a day. This means when the market direction turns back up, I am not sitting with all my capital tied to the downside.
200 Day Moving Average
Throughout all of 2013 the Dow has not broken the 200 day exponential moving average (EMA) or even tested it. The closest it has come was in early September. That remains my guideline to the overall market direction. If the 200 day breaks more of my capital will be committed to the downside and more call credit spreads and naked calls will be used. Until then I am staying cautious with smaller Put Selling or call credit spread positions and only in stocks I would own for months if necessary in the event that the market direction turns a lot uglier than what I anticipate. I have a lot of free capital following September options expiry and only a small amount has been committed since those options expired. I will be taking my time as I look for opportunities which I will continue to post to my site when I see them.
Market Direction Internal Links
Profiting From Understanding Market Direction (Articles Index)
Understanding Short-Term Signals
Market Direction Portfolio Trades (Members)