March 27, 2013

Logical Market Update: Algorithmic Trade Dominates Wednesday – Trading Opportunities Remain Plentiful

Algorithmic Trading Continues to Dominate Trading – Trading Opportunities Remain Plentiful.


The best-laid plans don’t always seem to go accordingly.  Wednesday’s opening seemed to signal that the markets would move lower and things could get “ugly” as they say.  Well, that was until the algorithmic trading computers were turned on after the first 30 minutes of trading.  It was interesting to watch how at first it seemed to accelerate the downside and then as if the 1545 level in the S&P rang the reverse bell the buying began and held for the balance of the session.  There were plenty of reasons for the markets to get soft both fundamental and technical, but that doesn’t matter to a computer as prices were pushed back into the “green” by the close.


The patterns have not reverted totally back to bullish which leaves a strong possibility that an additional leg down will take place before the advances in the equity markets resume in earnest. 


The “pot odds” continue to favor the market heading lower.  I’m finding that leaving any emotions at the door before beginning to trade will ultimately benefit the outcome at the end of the session.  In other words – don’t let your emotions rule how you initiate a trade – either as a buyer or a seller.  This is where using a dependable trading system; such as the DTS system will benefit a trader’s P&L.  So much so that I am including yesterday’s discussion again:


Diversified Trading Systems (DTS) – Trading with the Birds:


 As a technical analyst with many years of experience I find myself going over charts throughout the trading day – but I get asked many times how to find trades without having the years of experience or knowledge that often exhausts the novice trader quickly as it strains emotions, and even the ability to see clearly.  Well, here is the good news!  You don’t have to comb over charts looking for signals or confirmations to trade with DTS.  DTS does the “combing and hunting” for you.   


DTS offers three “birds” to trade with – the Hawk Micro-Scalper, the Falcon Swing Trader, and the Eagle Trend Trader.  All are available separately and here is the really good news, you can plug several markets into each component (Hawk, Falcon, or Eagle) to cover, equities, treasuries, futures, precious metals, or forex.  With the markets seemingly spreading the action across the spectrum it is now possible to receive signals and react to them with clarity and accuracy. 



The U.S. $/Euro remains a heavy favorite at the moment but bear in mind that since it is a 24 hour market much of the action may take place during European trading.  All three DTS birds continue to produce numerous signals as this market continues to stumble, recover and fall again as the situation in Cyprus unfolds.


And the equity and treasury futures markets did kick into gear on both the downside and upside and as expected the “birds” produced many signals and opportunities to trade profitably. 


Traders should remain in play as trading opportunities on an intraday and short-term basis will continue.  Diversified Trading Systems (DTS) via its three (Hawk scalper, Falcon swing, and Eagle trend) systems remains my choice to use as it offers a complete and unique system to trade with. 



Observations from Wednesday’s trade and expectations for Thursday (Interest rate and currency futures that trade on the CME will be closing early on Thursday – with U.S. markets closed on Friday):


Thursday’s trade may be thin as traders leave for the long holiday weekend.  That can produce some powerful intraday swings. 



The Russell 2000 did push slightly below Monday’s low leaving a more complete corrective pattern in place.  This would be confirmed with a solid break (with follow through) above 951.30.  Also, it the DJIA and S&P 500 move lower on Thursday I would suspect the Russell to follow but not in tandem.  Initial selling may be held to support at 945 to 944 and if this is the case look for the Russell to lead the way higher.  Continue to watch the Russell to offer signals intraday.  As long as the trading range remains between 5 and 10 points use all three birds for trading –  (Hawk, Falcon & Eagle).


The DJIA (basis the June future) opened weak on Wednesday as expected but once the algo computers were turned on it was a quick run to higher ground.   The pattern is not that conclusive that another attempt at 14325 to 14300 has been ruled out in favor of new highs above 14520. Downside action though, should change the trading range with the range of over 100 points from high to low still in the picture. (Hawk, Falcon, & Eagle should continue to produce excellent signals).


The S&P 500 was off slightly as the overnight session began.  This is in line with this market putting in another down leg towards the 1538 area before picking up the advance again.  This would be negated with a break above 1560 with follow through.      


Remember with regards to trading opportunities, the important factor is to follow the trend and not your emotions. Position sizing is critical as is risk management both of which are covered well with Trade Manager from Diversified Trading Systems.  Also a point to consider is that the DJIA and S&P 500 both offer e-mini contracts for trading. 



Here is an updated list of the markets that DTS (all three birds) are producing numerous signals and have been very profitable:

  • US$/Euro
  • GS (Goldman Sachs)
  • AAPL (Apple Computer)
  • GOOG (Google)
  • LNKD (LinkedIn)
  • NFLX (Netflix)
  • E-mini S&P 500  
  • E-mini DJIA
  • 30-yr Treasury Bond future
  • 10-yr Treasury Note future
  • TLT (Treasury Bond Long ETF)
  • TBT (Treasury Bond Short ETF)






Expectations for Thursday:


Support and Resistance:


DJIA (basis the June Dow future): Support at14438 to 14400, 14335 to 14293. Resistance at the 14475 to 14495, and 14525 and then 14600. 


S&P 500 (basis June future): Support at 1554, 1551, 1542 to 1539.25.  Resistance at 1560 with a break with follow through pushing stronger resistance to the 1565 to 1570 area.


Russell 2000 (basis the June future):  Support at 945.50, 944, 942.50 and then 936.   Resistance remains at 950 to 952 and then 960 to 965.     




The treasury markets found renewed rally support on Wednesday jumping nearly a point in both the 30-year bond and 10-year notes.  The 30-year bond future equaled the 144.29 high before slipping slightly into the close.  It is too early to call, but that might be all we get before the next leg down begins.   Resistance at 144’29 to 145’05 may continue to contain upside.     Support is at 143’30, 143’06, 142’22 and then 142’05.  


10yr –note (basis the June future) continue to trade above Monday’s range and closed above resistance at the 132 area.  Additional upside can’t be ruled out but additional resistance at 132’05 to 132’10 may continue may continue to hold it.  Support is now at 131’30, 131’18, 131’08, 131, and then 130’25.


TLT – Resistance at 117.75 to 118.00 was smashed on the gap opening on Wednesday.  Next resistance comes in at the 119 area, but the pattern is not that convincing that additional upside can be sustained.  Support now begins at 118, and then 117.65, 117.25, and then 117, 116.50 and 116.


TBT – Resistance at 65.75 to 66 and then 67.50 – 68 with support being totally surrendered at the 65 level on Wednesday.  Although this level was recovered by the close another test can’t be ruled out just yet.  Below 65, support comes in at 64.25 and then 63.90.