June 11, 2013

Logical Market Update: BOJ Sits Tight – What’s up with China and Brazil? U.S. Corrections Continue

Japan Central Bank Decides to Sit Tight – What’s Up With the Chinese Economy and Brazil? The U.S. Corrections Continue as the Seller Flood Gates Opened, Closed, and Opened Again.

The U.S. broader indexes took their cues from the Asian and Eurozone markets as the wave of selling circled the globe. The precious metals took a hit although it was tempered somewhat by economic uncertainty. The Euro ground higher pushing back above 1.33 as traders wait for the final decision from the German Courts like it was “manna from heaven”. The Treasury markets appear to have started a long much-needed upward correction after breaking below 139 (30-yr bond future) yesterday.

The U.S. market corrections continue and while initially trading lower at the start of after hours trade all the indexes have reversed and are now slightly higher. The chart patterns though continue to favor additional upside to relieve some oversold readings. It may well be a mixed bag with an upward bias as trading moves towards Friday’s “Triple Witching Expiration” and then hold tight until next weeks (Wednesday) word from the FOMC. Bottom line here is that the increase in volatility has been a gift and wonder for day trading. Along with solid two-way trade there is hardly a boring moment with so many signals being generated by the DTS birds that I had to turn down the alert volume and get picky!

It was a rough and tumble day for the Asian markets after the BOJ decided to hold with its current stimulus plans and fresh economic news out of China continues to point to a slow down. This ultimately reduces demand for commodities such as iron ore and coal used in manufacturing of steel and electricity. The ripples quickly swept around the globe putting added pressure on Brazilian markets – since Brazil is a major commodity supplier to China.

Take a look at iShares MSCI Brazil Capped Index (EWZ) – has lost 15% of its value since May 22^nd producing a new four-year low this morning at 47.57. While the momentum oscillators are signaling oversold there is still potential for further breakdown before this market turns higher on a sustained basis.

Also, hit hard recently are Brazil’s giant mining companies Rio Tinto and Peabody Energy both reaching new 52-week lows along with China’s huge state-owned oil company, Petrochina.

RIO TINTO (RIO)

PEABODY ENERGY (BTU)

PETROCHINA (PTR)

And to add salt to an already gaping wound Fitch Rating issued a report warning against China’s massive unregulated “shadow banking” sector. From Reuters:

China has tens of thousands of non-bank lenders that are providing increasing amounts of credit to businesses and government outside the mainstream, regulated banking sector, a situation that is stoking systemic risk, Fitch said.

Last year I published two articles on Seeking Alpha concerning our own “shadow banking” sector that we gleefully call “To Big To Fail” (to read them click here and here).

With the addition of the “uncertainty factor” pushing the volatility up in all of the above-mentioned companies it brings along with it many possible opportunities. I’m always on the lookout for potential candidates for trading. Here are four worth checking out and plugging into the DTS “birds”.

My point on money rotation and sector rotation is similar to that on parabolic moves that they happen with frequency within many time frames. As traders these types of moves can be a bonus for day trading or position trading so again don’t get caught up in the “what’s the catch.” Realizing a rotation is occurring within a stock you trade or a sector is a great source of stocks to plug into the Diversified Trading System. Allowing DTS to cleanly and beautifully capture the moves though any or all three DTS trading platforms. Our goal remains to assist traders to make greater profits during all types of markets. Sector and money rotation is another tool.

Diversified Trading System

I continue to recommend as the best trading platform available to a broader range of traders from novice to expert. The Diversified Trading System offers a cost effective product that allows a trader to enter into the “chaos” and trade more effectively.

Trade Manager from Indicator Warehouse automatically calculates the correct amount of contracts or shares based on your account size or market volatility. Automated stop-loss management and position sizing eliminates most of the problems most individual traders have. Day trading and position trading both require (actually demand) good risk management. Trade Manager does the job across the board and is an essential trading tool that ensures that you take the maximum profit from all your trades.

A newer member of the money management tools available from Indicator Warehouse is the Profit Finder – System Back Tester. When implemented it allows the user to:

Immediately know the impact of parameter changes.
Automatically reads all of your DTS entries and exits
Calculates the profit/loss of each trade
Performs a wide number of essential intelligence boosting calculations instantly
Provides solid details about the effectiveness of your trading strategy/ methodology/ indicators

The last two points above are valuable tools to use. It will show you where some “tweaking” is needed to improve results through the back testing feature.

The Diversified Trading System used together with Trade Manager should continue to produce numerous trading signals in the DJIA, YM (mini), S&P 500, ES (mini), RUT, TF (Russell 2000 mini), AAPL, AMZN, GOOG, NFLX, and LNKD, GS, and Tesla Motors (TSLA).

Here is an updated list of the markets where I have found that DTS (all three birds) are producing numerous signals:

DJIA future (e-mini available) – Highly recommended
S&P-500 future (e-mini available) – highly recommended
Russell 2000 future (e-mini available) – highly recommended
NASDAQ 100 future (e-mini available) very highly recommended
US$/Euro futures (e-mini available) – very highly recommended
GS (Goldman Sachs) – good two way volume –
AAPL (Apple Computer) – very highly recommended
GOOG (Google) – very highly recommended
LNKD (LinkedIn) – solid intraday range
NFLX (Netflix) – solid intraday range
TSLA (Tesla Motors) – highly recommended
30-yr Treasury Bond future – did not get quiet – opposite took place
10-yr Treasury Note future
TLT (Treasury Bond Long ETF)
TBT (Treasury Bond Short ETF)
Gold (futures and ETF – GLD)
Silver (futures and ETF – SLV)

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