I had expected a slight up day on Friday but the market direction pushed higher than I had thought. Retail sales figures came in slightly weaker than expected but big ticket items like cars, furniture and electronics were still up. Trading was light which often can push stocks easily one way or the other. Since the week has been up, perhaps this helps to account for the better than expected rise on Friday, especially considering the Fed announcement expected this week.
Market Direction Intraday Sep 13 2013
The market actually came close to making the day’s high by 10 AM as out of the gate investors were buying and pushing up stocks. The sell-off in the morning pushed the S&P back below 1683 but the low held and the market spent the rest of the day flirting with just shy of 1689 before closing just below the morning opening high. All in all it was a good day and with stock market volume being lower, the rate of change technical indicator broke into positive readings indicating that a lot of new buying was underway.
Laszlo Birinyi Outlook
One of the more interesting comments this week came from one of the veteran investors I had followed for decades, Laszlo Birinyi. He was one of the first to call for the market direction to move back up in early 2009 and has been bullish ever since. He is still convinced the bull market has room to move higher and won’t be surprised to see the S&P 500 higher by year-end and higher next year, perhaps to 2000. In his comments recently he pointed that there is no euphoria in the markets yet and many investors still are reluctant to buy stocks. He said that once the stock market gets into front page reading or perhaps the cover of a magazine like Time, that will be sign to start moving out of stocks.
Apple Stock and Market Direction
Apple Stock meanwhile was moving in the opposite direction of the market direction. After selling off on Wednesday and bouncing back on Thursday, Apple Stock pushed lower again on Friday. This time it closed right at $464.90 which is square on support at $465. You can see in the one year chart below there there is a lot of support at $465 on the stock. If $465 breaks there is light support at $454 and $428 but not really strong enough to turn any steep selling around. It can stall the selling enough though to allow me to keep rolling my naked puts lower. If Apple Stock breaks $390 in this downturn watch for the stock to easily fall to $375 and then $350. Apple is an incredible practical company with a wide moat of cash and enormous potential for revenue growth but it is facing serious competition in an already crowded market place. Still though I won’t be surprised to see the stock recover $500 this upcoming week.
A question from an investor about my recent Apple Stock Put Selling I thought I would answer here. An investor asked me: “On your (recent) Apple Stock trade, you went three weeks out. Wouldn’t two weeks give you faster erosion of time premium? Since you’re prepared to roll down anyway if Apple drops below 65, why not pick the September 27th (rather than Oct 4).”
The reason for selecting October 4 rather than Sept 27 for my latest roll down of Apple Puts is because I really like $465 and hope support will hold there. I also hope the stock fluctuates a lot right around that valuation. The premiums for the three weeks out options expiry when I sold them on Friday were terrific and what I was looking for was a larger amount, not necessarily a better percentage. I wanted this because I plan to trade these naked puts as outlined in my Apple Stock strategy update on September 13. I have traded them once already so I have high hopes of doing it again this week but to make it worthwhile I have to give other investors ample time for their positions to possibly be right. That means giving them three weeks rather than two. I should get a better dollar return by trading these three week options rather than the two week ones as next week is already less than two weeks to those options expire whereas the perception next week for the Oct 4 option will be that there is still three weeks before they expire, so interest and premiums should fluctuate a lot which is what I am looking for.
Lululemon Stock Update (LULU)
I posted a couple of times this week on Lulu stock. On Friday the stock moved back up off support at the $65 strike and closed at $68.37. I think there will be some downside to the stock to start off the week but support looks good at $65. Still though, any push back toward $65 would make the $60.00 put strike probably fairly expensive which could turn out to be a decent Put Selling trade.
Advance Declines For Sep 13 2013
Advancing issues were back up on Friday with 61% advancing versus 36% declining. However the new highs were 113 and the new lows exactly the same at 113. This is the second day with poor results and could be signaling that the advance is running out of steam.
Market Direction Closing For Sep 13 2013
The S&P 500 closed at 1,687.99 up 4.57. The Dow closed at 15,376.06 up 75.42. The NASDAQ closed at 3,722.18 up 6.22.
Market Direction Technical Indicators At The Close of Sep 13 2013
Let’s review the market direction technical indicators at the close of Sep 13 2013 on the S&P 500 and view the market direction outlook for Sept 16 2013.
For Momentum I am using the 10 period. Momentum is positive and not climbing but holding steady.
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 Sep 9 which was confirmed on Sep 10. Friday’s signal was slightly higher but continues to point to a slowing advance.
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 overbought.
Rate Of Change is set for a 21 period. The rate of change is now positive which indicates new buyers are stepping into the rally. This could also be caused by the low volume for the day.
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 down. It is extremely overbought. As the slow stochastic is looking out more than a day we could see some weakness by Tuesday or Wednesday. It could also be signaling some investor concern over the Fed announcement on Tuesday.
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 up and it too is extremely overbought.
Market Direction Outlook And Strategy for Sept 16 2013
Friday saw the market direction continued to push higher which surprised me somewhat. I had expected some weakness but still a green day but not much of an advance. The market direction technical indicators are showing there is still more upside to the rally but the big advance for the moment is over. If the announcement on Tuesday by the Fed is another delay in scaling back Quantitative Easing that should give the stock markets another push higher. Meanwhile the rise in stocks has spread into some stocks that have been out of favor as investors are looking for stocks to buy that have not yet had a strong move higher. This often happens when the big advance is over and the market direction enters a slow grind higher.
For Monday then I am back looking for the market direction to be weak with a close that could be slightly higher or slightly lower. I think the bias is still to the upside but I am not expecting a strong move higher from here as we test the 1690 level on the S&P 500. Strategy wise I have not changed at all and I am continue to sell puts as you can see from the various trade alerts last week.
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