In Friday’s market direction outlook I explained that I was not very concerned about the market direction. Friday saw the markets pull back somewhat dramatically and then rise again and close in the green as traders stepped in. Traders though cannot hold up a market for long. They are as their name implies traders only. At the same time though traders will play the market up or down as the direction dictates. At present then, the majority of traders obviously believe that pull backs are buying opportunities and as they push stocks back up they unload them again. It’s a great trade and can add significant profits if done properly.
Market Direction Action for July 26 2013
The market direction action can be seen in the daily 1 minute chart of the S&P 500 below. You can readily see the market sell-off in the morning and just as on the previous day, the first low was made and then once the second low failed to push beyond the first low, the traders stepped back in and bought. At the end of the day they had pushed stocks to their closing highs.
This type of action can be a precursor to more selling just as the closing highs can be a sign of bullishness. In other words we are back to the sideways with a bias up or down. Eventually the pattern we have been seeing of selling in the morning and then buying right into the close will end and stocks will give a clear signal. But as we are winding down for July, the outlook is almost as hazy as it was at the start of the month.
Market Direction Closing For July 26 2013
The S&P 500 closed at 1,691.65 up 1.40. The Dow closed at 15,558.83 up 3.22. The NASDAQ closed at 3,613.16 up 7.98.
Market Direction Technical Indicators At The Close of July 26 2013
Let’s review the market direction technical indicators at the close of July 26 2013 on the S&P 500 and view the market direction outlook for July 29 2013.
For Momentum I am using the 10 period. Momentum on Friday slipped just slightly lower but failed to turn negative.
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 buy signal on July 5. The buy signal continues to weaken but it is still positive.
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 therefore it is signaling that the market direction remains up.
Rate Of Change is set for a 21 period. The rate of change is positive but pulling back. The movement in the rate of change is indicating that there is limited conviction in holding stocks. There is more trading than buying to hold, going on.
For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic is signaling that the market direction is still down and the Slow Stochastic remains overbought. This tells us that the start of the week could see some selling.
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 indicating that the market direction is down for Monday and it reflects the overbought condition of the market.
Market Direction Outlook And Strategy for July 29 2013
The market direction push higher continues to look like it is running on empty. This though could be misleading. Most of the technical indicators are still in positive territory. The market could easily be working out the overbought condition and preparing to move higher. At the same time the drop on Friday morning was greater than the drop on Thursday morning. Should Monday morning see another drop at the open or into part of the day, traders may step aside to see just how much selling conviction there is among investor.
So we are back to a see-saw type market. This though is ideal for my Put Selling and I continue to hunt for more opportunities. I will post on Monday a list of stocks I am watching under the trade ideas category of the members site.
In short my concern is very low for the market direction at present. The market continues to exhibit all the signs of being overbought and working that condition out before moving higher. The problem though is that revenue is coming in short of analysts lowered expectations. Lower revenue will catch investors should it continue to dominate the quarter. The market direction up needs more stocks with better revenue that beats what is becoming lower estimated values on the part of analysts.
The see-saw mode continues and I am not expecting much change on Monday.
Market Direction Internal Links
Profiting From Understanding Market Direction (Articles Index)
Understanding Short-Term Signals
Market Direction Portfolio Trades (Members)