The Market Direction on Monday seemed a bit concerning at first. At the outset I received a number of emails from investors wondering if I thought this was the start of a large correction. There are enough signs for both sides of the market direction at present. Unless earnings are above expectations and improving, it will be hard for stocks to maintain a market direction move higher as stocks are at present, in my opinion, already overvalued.
In last night’s market direction post which you can read through this link that the dividend yield of the S&P 500 is now at 2.13% which is below the historic average of 3.11%. I also mentioned the Shiller P/E ratio which adjusts for inflation and that the S&P 500 is sitting at 23.47 time earnings which is high in relation to the average of 19.7 times earnings.
So while the market direction in the morning saw selling, the afternoon saw investors stepping in once again and buying stocks pushing all the indexes into positive closings.
Market Direction and Earnings
The start of the first quarter earnings for 2013 began after hours with Alcoa reporting quarterly earnings of 11 cents beating estimates of 8 cents. This is a huge jump of 37% over estimates. Alcoa shares rose during the day but after earnings were announced investors noted how actual sales were down slightly at $5.83 billion, below estimates of $5.88 billion.
But nonetheless these are good numbers from Alcoa and hopefully they indicate stronger earnings than expected.
Market Direction Closing For Apr 8 2013
The S&P 500 closed at 1563.07 up 9.79 points and the Dow closed at 14613.48 up 48.23 points. The NASDAQ closed at 3222.25, up 18.39 points.
Market Direction Technical Indicators At The Close of Apr 08 2013
Let’s take a moment now and review the market direction technical indicators at the close on the S&P 500 and view the outlook for Tuesday April 9.
For Momentum I am using the 10 period. Momentum is unchanged and has remained positive although with the push in the afternoon ion market direction up, momentum should have been slightly higher.
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) is still negative and the sell signal is still active. This marks more than two weeks of the sell signal for MACD, during which the market direction has remained almost flat.
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 still positive and is back climbing reflecting the buying interest in the last half of today’s trading.
Rate Of Change is set for a 21 period. Rate Of Change is still positive and climbing. Rate of Change has not been negative since February 26.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling market direction is turning neutral with a bias to up.
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 is signaling that the market direction has changed from down to up.
Market Direction Outlook And Strategy for Apr 09 2013
The market direction outlook from the technical indicators remains split. The Ultimate Oscillator, the Fast Stochastic, Rate of Change and Momentum are pointing to the market direction as moving higher. The Slow Stochastic is at neutral with an up bias and only MACD is indicating market direction is still negative. The consensus then is that the market direction should move higher tomorrow.
Market Direction Outlook and Russell 2000
There has been a lot of commentary among technical analysts regarding the Russell 2000, including in my market direction outlook this past weekend. The Russell 2000 ETF, broke through the Lower Bollinger Band last week and continued lower, breaking through the 50 day simple moving average (SMA). Today the Russell 2000 ETF pushed back to above the 50 day simple moving average (SMA) and is pushing towards the 30 day exponential moving average (EMA). The Russell 2000 needs to stage a recovery here for the market direction to convincingly move higher. It is well worth watching and for those interested investors, this could make a nice short-term Put Selling opportunity as the IWM ETF recovers.
Market Direction and the VIX Index
Today the VIX Index closed at $13.19. On Friday the VIX Index was as high as 15.65 before closing at 13.92. Today the VIX Index climbed to just 14.50 in the morning and then fell to close at 13.19. If the VIX Index falls back below $13 I will once again be buying VIX Index calls.
Market Direction For Tuesday
The outlook then for Tuesday should see a follow through from Alcoa earnings and some buying following today’s push higher in market direction. The Technical Indicators, Russell 2000 and the VIX Index are all pointing to a higher market direction move tomorrow.
Many stocks are fully valued but some are still undervalued. Among those are the Canadian Bank Stocks which have been in correction since the beginning of March and Intel Stock which I bought shares of on Monday and sold puts as I anticipate this stock will rise going into earnings.
Market direction for Tuesday then is for a return to up as investors should be pleased with Alcoa’s results.
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