FullyInformed.com

Market Direction Intraday For June 7 2013 Is All About The Fed

Jun 7, 2013 | Stock Market Outlook

Last night the market direction outlook for today was a market sitting at the crossroads. The push away from the 50 period exponential moving average (EMA) yesterday, seemed to mark a reversal for the market direction correction. By 11:30 today the Dow was already up over 200 points and the S&P 500 was up $18.91 or more than 1%. So is this the end of the correction? Just as in April it may appear that the markets have withstood another shallow test and are moving higher. So what’s driving this market direction rally back? The answer in my opinion is the Fed.

Bernanke Put Continues To Hold Market Direction

The Fed Chairman Ben Bernanke advised that the Fed was looking to scale back its bond buying program which would essentially mean a retreat from Quantitative Easing which has been part of the Fed policies since 2008. This announcement caused the recent decline in stocks. The unemployment numbers today were not spectacular but at the same time show anemic growth which is exactly what investors hope will delay any reduction in quantitative easing by the Federal Reserve.

The Fed Chairman has indicated his desire to keep the Fed policies accommodative until unemployment is down around 6.5% or inflation is half a percentage point above 2% two years out. Today’s employment numbers continue to convince investors that with unemployment edging up to 7.6% and no signs of inflation on the radar, the Fed will remain accommodative longer than the summer period and possibly even into the fall or dare investors believe into 2014. In other words, the Bernanke Put remains on the market direction longer.

Market Direction Game Of Chicken

Today’s market direction is like a “game of chicken”. Investors want to stay in the markets as long as possible trying to keep pushing market direction higher and racking up profits but they all hope to get out before an expected market direction tumble when the reduction of quantitative easing starts or its effects are felt by markets. Investors in general seem to believe that the Fed will not allow stocks to collapse at this stage of the recovery.

Market Direction and Put Selling

In this kind of market direction environment volatility will remain with investors allowing Put Selling to continue to bring in substantial gains but I believe a solid strategy must be used. That strategy has to include:

  • Staggered selling of fewer put contracts at strikes closer to at the money and more put contracts out of the money to boost the overall month return
  • Careful use of margin. Margin should be used only on far out of the money put contracts in the event that the market corrects more significantly than expected. A significant and swift market correction can send stocks lower quickly and assignment of too many contracts can mean margin calls.
  • Staying with large cap dividend paying stocks that have a history of recovery from corrections are safer bets
  • Limit use of Put Selling against speculative stocks to just a small handful to protect the overall portfolio from losses in the event stocks pull back harder than anticipated
  • Closing naked puts early when put premiums fall to mere pennies to remove risk of assignment and lock in profits.
  • Following stock fluctuations more carefully to sell puts when a stock pulls back or “dips” and then buying to close these sold puts when the stock recovers. Repeated use of this strategy often makes for significant gains and helps to control risk by limiting the amount of capital that is committed to a position to a shorter period of time.
  • Stay with large cap stocks that you would own if assigned shares.
  • Consider using in the money covered calls at the first sign of stocks falling significantly (break of 50 day support)
  • Have a rescue plan in place before entering a trade.
  • Keep more than the usual amount of cash available for rescue strategies should stocks fall and naked puts need to be rescued.
  • Consider credit put spreads but close them early rather than keep adjusting them to accommodate stock movements.
  • When doing credit put spreads consider increasing the number of contracts done to increase actual income amounts when they are closed early to lock in gains. Again, I would not adjust positions but close them to lock in profits, then reassess.

No Reason To Wait For Correction

In the environment that we are in, I see no reason to sit on the sidelines and wait for a hoped for correction in market direction. It is important to understand that stocks are manipulated all the time. As a retail investor I realize that the market is always stacked against me. Insider trading, stock manipulation, leaked earnings and much more have always been a part of stock markets and will not change. But through using option strategies and staying with big cap stocks I can continue to earn profits and income while protecting myself as much as possible from manipulation. I know that in any market environment, bull or bear, I can continue to profit through carefully studying the stocks I trade.

The 3 keys are:

  • watching for revenue changes
  • watching for product changes
  • continue to monitor stocks through technical indicators that pinpoint events like:
    • accumulation or distribution
    • oversold and overbought
    • unusual volume activity

Overvalued Stocks

Today’s market direction action shows that the majority of investors, institutional and retail are committed to this market until the Fed scales back liquidity.

In my opinion most large cap stocks are now overvalued but that does not mean I have to stop Put Selling or discontinue my stock and option strategies. It simply means that I need to remain aware of the risks of committing capital to this market and follow the tips I have listed above to continue to generate income. It also means that I need to use the Spy Put Options for downturns to keep building up my cash cushion for when a full correction finally comes and to always have a rescue strategy in place before I commence a trade. In other words, I always have an “out” to protect against capital loss.

Internal Market Direction Links

Profiting From Understanding Market Direction (Articles Index)

How I Use Market Timing

How I Use Market Timing

Understanding Short-Term Signals

Various Market Timing Systems

Market Direction Portfolio Trades (Members)

Market Direction External Links

Market Direction IWM ETF Russell 2000 Fund Info

Market Direction SPY ETF 500 Fund Info

Search

Select to view all results...

Generic selectors
Exact matches only
Search in title
Search in content
Post Type Selectors

Recent Outlooks

Stock Market Outlook for Fri Apr 4 2025 – All About The March Jobs Numbers

Prior Trading Day Summary: Thursday saw stocks collapsing worldwide following higher than expected tariffs from President Trump. At was a brutal day, the worse single day since 2020. The SPX closed down 274 points to 5396 on 7.3 billion shares …

Morning Investing Strategy Notes for Thu Apr 3 2025

For FullyInformed Members the morning Investing Strategy Notes for Thu Apr 3 2025 review the outlook for stocks after tariffs were announced on Wednesday. Stocks discussed for today include Chevron Stock (CVX), Exxon Mobil Stock (XOM), VIX ETF, TQQQ ETF, …

Stock Market Outlook for Thu Apr 3 2025 – Bearish Following Higher Than Expected Tariffs

Prior Trading Day Summary: On Wed Apr 2 2025, investors rallied stocks for a third day on hope that the tariffs being introduced would be lower than many expected. As we found out after the market closed, the tariffs were …

Morning Investing Strategy Notes for Wed Apr 2 2025

For FullyInformed Members the morning Investing Strategy Notes for Wed Apr 2 2025 review the second higher day on Tuesday. Stocks discussed for today include VIX ETF, TQQQ ETF, SQQQ ETF, RH Stock (RH) and more. The morning Investing Strategy …

Stock Market Outlook for Wed Apr 2 2025 – Tariffs Day – Still Bearish – Bounce Attempt Likely

Prior Trading Day Summary: On Tue Apr 1 2025 stocks sold lower before finding some buyers. By the close the SPX and NASDAQ were back positive. The SPX closed up 21 points to 5633 on 4.5 billion shares traded. The …

Morning Investing Strategy Notes for Tue Apr 1 2025

For FullyInformed Members the morning Investing Strategy Notes for Tue Apr 1 2025 review the afternoon rally from Monday. Stocks discussed for today include VIX ETF, TQQQ ETF, SQQQ ETF and more. The morning Investing Strategy Notes are for FullyInformed …

Stock Market Outlook for Tue Apr 1 2025 – Nice Bounce But Still Bearish

Prior Trading Day Summary: On Mon Mar 31 2025 stocks seemed headed for another low until buyers finally returned. The index bounced and the SPX closed up 31 points to 5612. Volume was good at 5.3 billion shares and by …

Morning Investing Strategy Notes for Mon Mar 31 2025

For FullyInformed Members the morning Investing Strategy Notes for Mon Mar 31 2025 review the continuation of the sell-off. Stocks discussed for today include VIX ETF, TQQQ ETF, Lululemon Athletica Stock (LULU) and more. The morning Investing Strategy Notes are …

Stock Market Outlook for Mon Mar 31 2025 – Bounce Attempt Likely But Still Bearish

Prior Trading Day Summary: On Fri Mar 28 2025 stocks plunged lower without any large rally attempt. This lead to more selling which saw the index close near the day’s low. The SPX lost 112 points and ended the week …

Morning Investing Strategy Notes for Fri Mar 28 2025

For FullyInformed Members the morning Investing Strategy Notes for Fri Mar 28 2025 review the state of the market. Stocks discussed for Thursday include VIX ETF, TQQQ ETF, Lululemon Athletica Stock (LULU) and more. The morning Investing Strategy Notes are …

Stock Market Outlook for Fri Mar 28 2025 – Weakness Into The Weekend

Prior Trading Day Summary: On Thursday stocks had big swings with the SPX falling as deep as 5670 and rallying to 5732 before closing at 5693 for a small loss of 19 points. The SPX is still up 25 points …

Morning Investing Strategy Notes for Thu Mar 27 2025

For FullyInformed Members the morning Investing Strategy Notes for Thu Mar 27 2025 review the outlook for the rally as well as comments on the impact of the 25% auto tariffs announced on Wednesday. Stocks discussed for Thursday include VIX …

Stock Market Outlook for Thu Mar 27 2025 – Bounce Attempt

Prior Trading Day Summary: On Wednesday investors reacted to news of tariffs on automobiles entering the USA. There was also some profit-taking after 3 days of rallying. The S&P closed down 64 points to 5712 but on declining volume of …

Morning Investing Strategy Notes for Wed Mar 26 2025

For FullyInformed Members the morning Investing Strategy Notes for Wed Mar 26 2025 review the outlook following a choppy day of trading on Tuesday, during which volumes to the downside were dominant. Stocks discussed for Wednesday include VIX ETF, Apple …

Subscribe For The Latest News