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Market Direction Outlook For Apr 19 2013 – Hold Off Put Selling

Apr 18, 2013 | Stock Market Outlook

The market direction today is continuing to follow the short-term market direction technical indicators daily at present. The market direction today was simple for my Spy Put Options options trade. This trade is rapidly creating larger profits as it begins to build up a cash cushion to provide a hedge for my entire portfolio. I have increased the size of the Spy Put Options contracts from 60 put contracts to 80 since I want to hedge my portfolio which is at $850,000. A 10% decline could impact the portfolio by about $50,000, so I want that amount in the cash cushion. The market direction even though it certainly continues to appear quite weak may have a bounce in the works.

Market Direction S&P 500 Chart 5 minutes April 18 2013

Below you can see the 5 minute S&P 500 chart for Thursday April 18. The market direction intraday kept fighting back and then losing each rally. This set up an intraday pattern of lower highs, however when the S&P market direction had fallen to the 50 period SMA, the market turned up and bounced higher away from the 50 period moving average. Overall though the pattern is almost of a market direction in an orderly retreat. This type of pattern makes trading the Spy Put Options very simple.

Market Direction Apr 18 2013

Market Direction 3 Month Chart S&P 500

If we look at the three-month chart we can see the further deterioration in the S&P 500. We are now sitting at the 50 day moving average. Yesterday I indicated that one of the keys to any recovery is the S&P 500 holding the April 5 low of 1539.50. Today that low was broken and a new intraday low was put in at 1536.03. The S&P closed above both today’s low and the low of April 5 at 1541.61 which could be a good sign. If you look at the chart below you can see that the pullback although sharp is just 5 trading days old. The question now will be whether the 50 day moving average marks the end of the pull back.

market direction April 18 2013

Market Direction and the VIX Index

Meanwhile today the VIX Index pushed to $18.20 before closing at $17.56 up another 6.36% but off the highs for the day. The VIX Index needs to fall back to below $13.50 for the market to indicate an end to the rally.

Market Direction and the NASDAQ

The NASDAQ Index has broken the 50 day moving average and today breached the 100 day exponential moving average (EMA). It closed at the 100 day. The NASDAQ is being hammered by Apple Stock, Google Stock and a raft of other tech stocks.

Russell 2000 – IWM ETF

Another problem has been the Russell 2000 index (IWM) which fell further today down another half a percent at $89.58. The problem here is IWM has breached the 100 day moving average and closed right at it. All signs still point to the Russell 2000 falling lower.

Market Direction Closing For Apr 18 2013

The S&P 500 closed at 1,541.61 down 10.40 points. The Dow closed at 14,437.14 down 81.45 points. The NASDAQ closed at 3166.36 down 38.31 points.

Market Direction Technical Indicators At The Close of Apr 18 2013

Let’s take a moment now and review the market direction technical indicators at the close of Apr 18 2013 on the S&P 500 and view the outlook for April 19.

Market Direction Technical Analysis April 18 2013

 

 

For Momentum I am using the 10 period. Momentum is now decidedly negative whereas for several days it fluctuated between positive and negative readings.

For MACD Histogram I am using the Fast Points set at 13, Slow Points at 26 and Smoothing at 9. MACD (Moving Averages Convergence / Divergence) issued a sell signal on Monday April 15 and that signal continues to expand to the downside.

The Ultimate Oscillator settings are Period 1 is 5, Period 2 is 10, Period 3 is 15, Factor 1 is 4, Factor 2 is 2 and Factor 3 is 1. These are not the default settings but are the settings I use with the S&P 500 chart set for 1 to 3 months.

The Ultimate Oscillator is moving lower into negative readings.

Rate Of Change is set for a 21 period. Rate Of Change is now negative which reflecting the selling by investors and more investors are beginning to bail from stocks.

For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic issued a sell signal on the market on Monday April 15. The Slow Stochastic is approaching oversold territory but still has plenty of room to fall.

For the Fast Stochastic I use the K period of 20 and D period of 5. These are not default settings but settings I set for the 1 to 3 month S&P 500 chart when it is set for daily. The Fast Stochastic issued a confirmed sell signal on Monday April 15. The pull back has created a very oversold condition in the Fast Stochastic but the readings show there is more downside tomorrow.

Market Direction Outlook And Strategy for Apr 19 2013

The market direction today was steadily downhill. That would be the best description for it. Only the Dow has failed to break its 50 day moving average. The market direction technical indicators are all pointing to a lower market direction but there is some hope as the Fast Stochastic is so deeply oversold that it often leads to a bounce back. As well with most of the major indexes now breaking into the mid-term moving averages that in itself often leads to a bounce back.

I am continuing to keep my cash at the side and wait for a clear signal from the market direction. Right now that clear signal is lower which means further Put Selling is on hold as I wait to see if prices are going to move lower. Put premiums will improve if stocks continue to drop. As well I do not wish to be selling puts and then watch my stocks fall further and place too many of my puts deep in the money.

Patience is worthwhile at this point in the correction. Tomorrow we could see a bounce as we enter into options expiry for April 20. While I would love to see a bounce, all indicators are showing that the recent S&P 500 new all time high may be a top. If we do bounce here, be careful as it will probably be a technical bounce and it may confirm the S&P 500 recent top as indeed the end of the most recent rally.

Whatever happens I am well prepared with lots of cash on the sidelines, far out of the money naked puts and those that are at the money are in the process of rolling lower or being closed. If there is no bounce tomorrow don’t be surprised if the market direction moves a lot lower, but we should also get clear indications whether we can expect a bounce early next week.

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 External Links

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Market Direction SPY ETF 500 Fund Info

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