Market Direction today continues to show the resilience within the markets among investors, but there are signs that the rally may be in for some trouble. This evening I thought I would look at a few of the signs that could be warning investors. There is nothing concrete yet, but after investing for many years I know that it is always worthwhile paying attention to possible signals. Nothing is ever a guarantee especially when it comes to investing. My short-term technical indicators are great for short-term timing but sometimes keeping an eye on other signals can warn in advance especially when I primarily do put selling. It’s not pleasant to be put selling and end up with the market direction changing to down and leaving a lot of naked puts in the money.
Dividend Stocks Are Under Pressure
When you look at the various stocks that are under pressure one group definitely is standing out, dividend paying stocks. While it is true that Revenue has not met expectations, many investors look like they are beginning to question whether holding dividend stocks is worthwhile going forward, if the Fed is going to be reducing quantitative easing starting this summer. Once QE is scaled back interest rates are sure to rise making dividend paying stocks less attractive to hold.
For example JNJ Stock is down from its most recent high of $89.99. It was just a week ago that analysts were calling for JNJ Stock to move to $100 and JNJ Stock is not alone. Check the charts of Coca Cola Stock, PepsiCo Stock and dozens of other dividend stocks. The movement lower is subtle but definitely noticeable.
Treasuries Are Up
Treasuries are moving up. Treasury bond yields hit their highest level in more than a year on Wednesday, as investors are obviously of the opinion that interest rates are going to rise. According to Reuters, the spread between the S&P 500 dividend yield and the 10-year Treasury yield is at its narrowest in the last 12 months.
Market Direction For The Past 10 Days
Below is the past 10 days of the S&P 500 set for 5 minute time frame. The red arrow rests on the 1650 valuation. Note how 1650 was first touched back on the 16th of May at the close. The following day the S&P 500 jumped from the 1650 valuation and climbed higher. But since then the 1650 level has been revisited several times as the S&P 500 seems to be having trouble holding above that level. The blue arrows show a pattern of higher lows, but the green arrow shows the pattern of lower highs reflecting the indecision among investors. Investors are still buying the dips but they are not holding for as long.
S&P 500 3 Month Daily
Meanwhile if we look at the 3 month daily chart, you can see that this recent period of weakness is actually not as poor as the mid-April period. In the mid-April period the S&P 500 market direction fell all the way to the 50 period exponential moving average before recovering. This most recent period of weakness we have not yet seen even the 20 period exponential moving average being broken but investors are quite concerned.
So what is the real concern among investors? I believe everything is pointing to Fed actions regarding QE reduction starting as early as this summer.
Market Direction – All About The Fed
So with the Dow and S&P 500 sitting at all time highs, investors, who just a few months earlier felt that the market direction higher was a “sure thing” have been spooked by the Federal Reserve Chairman. Therefore even though the market direction has not collapsed below the 20 period, caution is advisable, especially when put selling against dividend paying stocks until we see a clear signal that the market direction will turn back higher. Before we see what today’s market direction technical indicators are signaling, let’s look at today’s closing numbers.
Market Direction Closing For May 30 2013
The S&P 500 closed at 1,654.41 up 6.05 points. The Dow closed at 15,324.53 up 21.73 points. The NASDAQ closed at 3,491.30 up 23.78 points.
Market Direction Technical Indicators At The Close of May 30 2013
Let’s take a moment now and review the market direction technical indicators at the close of May 30 2013 on the S&P 500 and view the market direction outlook for May 31 2013.
For Momentum I am using the 10 period. Momentum turned negative yesterday and is negative again today.
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 May 24. The sell signal is still valid today and continues to push to the downside indicating there is more downside to come.
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 back positive today but barely.
Rate Of Change is set for a 21 period. The rate of change is positive and moved higher today indicating dip buying was going on today.
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 lower.
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 the market direction is up but really more sideways than up..
Market Direction Outlook And Strategy for May 31 2013
The market direction since Ben Bernanke’s comments regarding an early reduction of QE has shaken the market direction. The movement while not decidedly lower is definitely sideways with the bias remaining to the downside.
The market direction technical indicators are mixed. 3 are negative and 3 are positive although even the positive ones are poor in relation to the negative indications at the present. I did not further put selling again today. I want to see a clearer signal that the market direction is definitely going to be able to hold here. Personally I think the market has more downside ahead but if the market direction can hold at the 20 period, it will move higher. But again something needs to hold the market up and in the end it is always the same thing, revenue growth. If the next quarter results are better than the past quarter we could see the market direction move higher, but it is rare when the market does not have a correction of some significance in the year and we have yet to see one in 2013. The best period for that correction is within the upcoming months.
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