September 2, 2014

Has the Correction Started?

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deceptionTrading over the holiday weekend in the broader indexes basically kept the rally going with the NQ and ES hitting new highs.  So coming in on Tuesday morning felt as if the markets would again push to new highs under thin volume conditions without beginning any sort of a correction.  By the end of Tuesday’s session that pretty much fit the bill but we did see somewhat of a return of volume and two-way trade.  Unfortunately, if you are bearish, the move itself didn’t produce much of a sell-off.  As a day trader though, the broader indexes did give us plenty to do it just came in spurts rather throughout the day versus more consistently over the entire session.  What I found rather fascinating is how the 4080 level in the NQ and the 2000 level in the ES are now “value levels” where many traders are willing to believe there is strong (enough) support to contain selling and send the markets higher again.  This did prove to be the case on Tuesday, but I doubt that will remain the case as this week unfolds.

teslalogoOn Tuesday, it was the RUT’s turn to keep the bull running and run it did, with the biotech sector continuing to draw attention and capital. Along with a solid and amazing upgrade from Stifel Nichols analyst James Albertine on TSLA where he raised his rating to “buy” and the price target to $400 – yes that is correct $400. Oh, did I mention Mr. Albertine also compared TSLA to a freight train.  Yes, you read that correct a freight train, even though he expects the company to reach the $400 mark sometime in 2017 and would still represent a 50 times multiple based on Stifel’s 2017 estimates.  Don’t forget to mark September 9th on your calendars as that is when Apple is expected to bring the world the long awaited and very anticipated news release of Apple’s new iPhone 6.  Remember Apple is the heaviest traded stock by retail customers and the mere anticipation of new things has pushed the stock to new all time highs (post split).

The spill over excitement drew capital back into TWTR, GOOG, AMZN, BIDU, PCLN, and FB.  Volumes were solid in AAPL, FB, TSLA and TWTR, which was good to see.  On the other hand it did hamper any serious attempts to bring the NDX and RUT down to begin much talked about corrections.

renminbiCapital rotation isn’t anything new – and most of the time it is easy to see.  Treasuries for example saw the “flight to safety” money come flying back out, if in fact that is what it was.  I personally believe the recent rise in treasuries had more to do with the contract roll from September to December, which by the way appears to have wrapped up last Friday.  With the 30-year bond and 10-year note taking a thrashing that started during Sunday’s Globex session, the US dollar was the beneficiary of where that capital was going.  Possibly aggravating that situation was the continuing negative pall over the Chinese markets due in part to the countries failure to address their Shadow Banking problem or at least address it to the satisfaction of the major players coming into Chinese markets.  Even though the US is supposedly the largest US debt holder via bond repurchases – China remains in a strong second place.  Should they decide they don’t need to hold all that US debt they could start to hit the open market to sell it in an effort to repatriate the Renminbi – anyone else remember when the Japanese needed to repatriate the yen back out of US treasuries – here’s a hint it was October of 1987.

gold$Remember I am of the firm belief that it is Interest Rates that sit at the top of the pile (trading food chain).  Any changes there will have an affect on currencies, equities, precious metals and other commodities such as oil, grains, and softs.  The chain reaction remains active so long as the US dollar is the international currency of trade.  Tuesday saw interest rates creep higher, the dollar as well, leaving gold no choice but to retreat quickly back below $1300 and down towards $1260 before all was said and done.  Oil retreated as well, partially to the movement in the dollar but also as the “fear factor” lessened somewhat over the weekend within the geopolitical hot spots around the globe.

So, back to the original question – have the corrections started?  Yes, I would say they have – it will take some time to connect all the dots, but I believe the capital rotation is underway between sectors and that should carry us through September.  Next up of course will be the larger broader index futures roll out of September into December contracts.  I suspect that will begin to get underway next week sometime.  The third Friday of the month will be a larger expiration since both futures and options will be expiring.  Add in a dash of political uncertainty or an uptick in tensions within the Middle East or the Ukraine and well the corrections could receive an added boost in either direction.

Itimetosell’m sticking to day trading for now – again the NQ remains my fav go to market, but the ES is awesome when things get going.  Gold and Crude I also like, but leave to those traders needing more adrenaline rushes than me.  Volatility traders will have plenty to do – the VIX, VXX, and UVXY all maintained positive for most of the seesion on Tuesday except for the VX (future), which did actually go ‘red’ for a brief time this afternoon.  If you move over to trade the volatility instruments do take the time to learn about them – what makes them tick – are they short term or longer term –many do not have the same expiration cycles as equity options or futures.  So pay attention to the details if these are new to new.

If Tuesday was a precursor to the balance of the month I’m sure we’ll all have big smiles on our faces come October 1st.   Near term – I’m still looking for corrections to normalize several of the markets.  This is not the “big one” I don’t see that happening just yet.  It will, but additional new runs for the elusive brass rings in the DJIA, SPX, NDX, and RUT should ultimately follow currently smaller corrections.

tradersI’ll be starting up the Logical Signals Trade Room next Monday.  Check for details.  It is not your typical trade room and will be initially restricted to 50 subscribers.  I’m very excited about introducing this type of format and look forward to working together with other traders in producing solid results for all.  I’ll be using what I consider some of the best trading platforms that are easy to employ across the spectrum of equities, futures, forex, precious metals, commodities, and treasuries.  Click here for additional information on DTS’s Eagle, Falcon, and Hawk platforms.  Here, for additional information on indicators and here to take a tour of Indicator Warehouse’s product line.

Trading the number remains key to being able to reduce and separate the “noise” from opportunity.  This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the “chaos” and by trusting the mechanics of your strategy, be able to take advantage of them.

Opportunity continues to knock on our doors.  While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.

Steer the course and don’t compare yourself to everyone else.  You are not they and they are not you.  Remember to trust and believe what makes you unique at this moment in time and in this situation and allow others to choose for themselves.  Don’t be swallowed up by the chaos and false emotions swirling around.  Remember it’s just a number.

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