The market direction outlook for Thursday was for another rally attempt and then later a pull back. But as mentioned a number of times, any possible hint at an end to the stalemate on the debt ceiling would propel the market forward.
I read a number of articles after the market closed and I watched some business news. A lot of analysts seems annoyed that the market had its best day since Jan 2. Indeed on January 2 the S&P was up 36.23 points. Today the S&P was up 36.16. Many referred to this as just a relief rally that will fail shortly.
Relief Rally – No There’s More
I disagree. I believe this rally was the result of an extremely oversold condition, particularly on the Dow Index. Also the fact that the Dow had fallen all the way to the 200 day moving average also lends itself to a rally back. Next up is the removal of doubt on the part of investors that something positive may come out of Washington. Despite acting like little children, both Republicans and Democrats know that temper tantrums will only get them so far. They must eventually act especially if they are not going to hurt the economy and to prove to Americans that “they”, not the “other” party are the “bad guys” here.
Just the removal of doubt helped investors sentiment. Finally, there is the knowledge that we are in a bull market. Despite what media pundits and analysts would have us believe, the bull market is very much intact still. Whether it is because of a steady stream of support from the Fed, growing earnings from corporations, a declining unemployment rate or a recovery in housing, does not matter at all. Collectively all of these things and more are what is keeping the bull alive and well.
Those four things worked together today to propel this market forward by over 2% in every index. Was this a relief rally. I suppose in part, but the thought that this relief rally is a one or two day wonder is I believe wrong.
Politicians now know they have to act. Just the act of trying to come to a short-term resolution pushed up stocks by more than 2%. Believe it or not, politicians know the importance of the stock market in the economic picture. They will not want to see the market tank at this point.
Pullbacks in Market Direction
The market direction move higher cannot climb higher without corrections. This year this has been the only correction that saw the Dow fall to the 200 day moving average. Markets correct and in a bull market they are an opportunity. The trick is deciding whether it is just a correction or the start of a change in direction.
There will be pullbacks even after today. This rally was overdone just as the January 2 rally was overdone. But by staying with Put Selling strategies or put credit spreads investors can continue to earn income while waiting for the market direction to continue the trend that started today.
Weekly Initial Unemployment Insurance Claims
Investors also need to factor in that the Weekly Initial Unemployment Insurance Claims released today show that jobless benefits jumped last week to the highest level in 6 months. The figure came in at 374,000. If you recall from the Weekly Initial Unemployment Insurance Claims Market Timing System, anything over 350,000 usually sees the market direction have difficulty climbing.
While the unemployment insurance claims figures were up, none of this is a result of laid off government employees. Their numbers won’t be known until next week. Instead today’s numbers reflect a large increase of unemployed from California and many of the rest are from businesses that rely on the government. These businesses had to lay-off people as no orders were arriving from the government. In other words, the government shut down has already affected some businesses.
Market Direction Charts For Oct 10 2013
S&P 500 Market Direction
The S&P 500 closed back above the 50 day moving average today. In one day, the S&P index managed to push market direction from the 100 day moving average to above the 50 day moving average. The market direction up recaptured the 1680 level which is very important for this rally to continue. The next level that must be broken for this rally to continue is the 1700 level.
Dow Index Market Direction
The Dow which yesterday broke the 200 day moving average, today pushed beyond the 200 and through the 100 day moving average. It managed to push from a low of 14806 to 15126 which is where it closed. This recapture of 15000 on the Dow may not seem like much to analysts, but in truth 15000 has been a tough valuation to break through and hold. Today was an important day for the Dow and tomorrow will probably see the Dow slip back below 100 before pushing above it and to the 50 day moving average.
NASDAQ Index Market Direction
The NASDAQ has been the strongest of all three indexes. Only yesterday did it break through the 50 day moving average and then only slightly. Today it closed well above the 50 day moving average. It is within striking distance of 3819 which is the highest level in the NASDAQ since the year 2000.
Advance Declines For Oct 10 2013
84% of all stocks advanced today, versus 14% declining. 115 stocks made new 52 week highs while 84 made new lows. The market direction today belonged to the bulls.
Market Direction Closing For Oct 10 2013
The S&P 500 closed at 1,692.56 up 36.16. The Dow closed at 15,126.07 up 323.09. The NASDAQ closed at 3,760.75 up 82.97. IWM ETF rose 2.41%.
Market Direction Technical Indicators At The Close of Oct 10 2013
Let’s review the market direction technical indicators at the close of Oct 10 2013 on the S&P 500 and view the market direction outlook for Oct 11 2013.
For Momentum I am using the 10 period. Momentum is back up and while negative is on the verge of turning positive. If the market direction turns lower tomorrow momentum may take a day longer to turn positive.
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 the S&P 500 on Sep 30 which was confirmed Oct 1. MACD today took a big leap up but is still negative so the sell signal remains on the S&P via the MACD.
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 now back positive once again and climbing.
Rate Of Change is set for a 21 period. The Rate Of Change is back positive after today’s action reflecting that investors were back buying.
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 up. it is still oversold.
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 for tomorrow is up and it is no longer oversold.
Market Direction Outlook And Strategy for Oct 11 2013
The Market Direction Technical Analysis indicators are presenting a mixed picture for tomorrow. This is only natural after being down for so long and now the market itself has turned up. Today’s big move higher has pushed the Fast Stochastic and Slow Stochastic to signal market up. They both issued buy signals after the open this morning. Meanwhile other indicators are turning back up.
While technically speaking the sell signals remain confirmed and active on the S&P 500, today’s big push higher should get the indicators turning positive within a couple more trading sessions.
For tomorrow I am looking for the market direction to pull back somewhat after such a big rally, but I do expect there will be green on the board during the day and I am expecting a green close. I am back looking for more opportunities on dips to place more Put Selling trades. My outlook is obvious – I think we will eventually move higher shortly.
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