March 26, 2013

Logical Market Update: Algorithmic Trading Pushes Volatility to Lows – Day Trading with the DTS “Birds”

Algorithmic Trading Pushes Volatility to Historic Lows as the Range Bound Trading Continues – Day Trading with “the Birds”.


Algorithmic trading dominated trade across the board on Tuesday, as the DJIA and S&P 500 futures rallied strongly and then were held higher on low volumesThe oscillators have quickly moved into overbought readings yet again and when coupled with lower volumes and waning momentum it likely won’t take much to kick things lower.  It almost seems like a perfect storm of indicators – historic low volatility (VIX) – low volume – decoupling markets (treasuries/equities) – growing apathy and complacency that any new crisis is not a crisis (Cyprus, Italy, Greece, the Euro) and strong overbought readings.  So what do that odds favor and how should it be traded?


There are no guarantees except death and taxes, but the “pot odds” favor the market heading lower.  The correction this time might be larger and longer in duration before beginning to build any momentum strong enough to carry prices to additional highs that would amount to more than anything substantial. 


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. 


As I discussed yesterday, the U.S. $/Euro has been the star market for day trading.  All three DTS birds have produced numerous signals as this market continues to stumble, recover and fall again as the situation in Cyprus unfolds.


If the equity and treasury futures markets kick into gear to the downside I would expect the “birds” to be offering many signals and opportunities to trade profitably. 


As I have stated previously it is the corrective periods where momentum (upwor downward) gathers and clears the board for the larger advance to pick up again in earnest.

 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 Tuesday’s trade and expectations for Wednesday:


The Russell 2000 remained the weak link for most of Tuesday’s session, playing some catch up towards the end of the day.  I am continuing to watch the Russell to offer signals intraday.   Trade continues to be been held in a range between 953 and 932, with strong intraday swings.  (Hawk, Falcon & Eagle)


The DJIA (basis the June future) opened higher and remained in a tight range throughout the session.  Any downside action though, should change the range bound trading and bring back a very tradable swinging range of over 100 points from high to low. (Hawk, Falcon, & Eagle)


The S&P 500 as well deserves to be given some space and I’ve added the June future to all three birds for signals.   


As for trading opportunities, the important factor remains to follow the trend and not your emotions.  Remember 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 Wednesday:


Support and Resistance:


DJIA (basis the June Dow future): Support at14425 to 14400, 14335 to 14293, 14221, and 14163. Resistance at the 14525 level for starters and then 14600.


S&P 500 (basis June future): Support at 1555, 1550, 1542 to 1539.25, 1531.50, and 1525.25.  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 941.40, 936, 932, 928.60, 921.70, and 916.10.   Resistance remains at 950 to 952  and then 960 to 965.




The treasury markets decoupled somewhat from the equity markets as Tuesday was an inside day.  The highs for the 30-yr bond (basis the June future) were held within Monday’s range and below short-term resistance at 143’30.  Resistance at 144 to 144’22 should continue to contain upside.     Support is at 142’16 to 142’05 and then 141’16.

10yr –note (basis the June future) traded above Monday’s range and closed above resistance at 131’16.  Additional upside can’t be ruled out but additional resistance at 132’05 should cap it.  The next down leg may only slow and pay tribute to support at 131’05 to130’25, with stronger support below at 130.   


TLT – Resistance at 117.75 to 118.00.  Support at 117, 116.50 and then 116.


TBT – Resistance at 67.50 – 68 with support at 65.85 and 65.50