June 20, 2013

Logical Market Update: Deja Vu of 2008 – Thursday Was Day Traders Dream – Long Bond Holders Bound in Nightmare!

It Felt Like 2008 Again – Thursday Was Amazing – Day Traders Dream – Long Bond Holders Still Trying to Wake Up From the Nightmare!


If I thought Wednesday night into Thursday morning was an “Everything Must Go Sale” – Thursday’s U.S. sessions proved to be what I call a “Billy Graham Sell-Off”.  All assets were sold or liquidated for cash.  Nothing was spared my entire screen was red (except for inverse ETF’s like the FAZ and TBT and the Volatility Indexes – VIX and VXX).  At several points I had to turn off the audible signals being produced by the DTS “birds” the Hawk Micro Scalper, the Falcon Swing Trader and the Eagle Trend Trader.  The Hawk chimes “scalp” to alert a trade set up and then again for the entry.  The broader indexes were moving so quickly (in both directions – just more pronounced to the downside) that the different Hawk screens I use were basically just an overlapping “scalp”.  It was the type of day where traders needed to focus on between a few products.  Position traders were likely chewing anti-anxiety pills as bids vanished and markets dropped. 


Nothing escaped the wrath of the bear today – equities, bonds, forex, precious metals, and commodities all were sold as traders, portfolio managers, hedge fund managers, and investors attempted to sell assets before they become worthless.  It was a day where rallies were short as traders swarmed in to sell – the 30-year bond appeared to be in free fall at several points during the session breaking the 137 level during the night session and the 136 level during the U.S. day session.  Gold broke below 1300 in grand style setting off stops and creating a downdraft, which drove prices to 1268 before stabilizing.  Silver followed suit breaking below $20 reaching a low at $19.31.   The US Dollar flexed all the muscle it could taking the Yen and Euro to the “woodshed” during the Asian sessions and then again during European trading.  Commodities were sold as well – cocoa, coffee, sugar, frozen orange juice, soybeans, corn, wheat, feeder cattle, live hogs, lumber and energy  – oil, natural gas, heating oil, and gasoline.  The long and short end of the yield curve got whipsawed as treasuries fell from favor.


It was a day traders dream in fact I must confess that I stayed up all night trading the Euro and watching the moves in the other markets.  Now here is some advice – it is not time to move into long positions.  Covering short positions is totally appropriate and that actually should be the main reason for buying.  I do feel that the treasury markets are putting in a short-term bottom and are extremely oversold.  Most markets are oversold after Thursday – but I don’t think a few days of selling has reconciled the imbalance of longs in the markets.  Check the charts below to again put into perspective the damage done in comparison to the levels of support expected to be reached before it is time to get long.




Thursday morning was the start of the June expirations with some indexes expiring on the opening print.  Tomorrow is a triple witching expiration (equity options, index future and options) after the last few days of selling it really is anybody’s guess as to where things will get “pinned”.  I really don’t see any major rallies getting started before the later part of June or July.


Equity Markets


The corrections got a huge jump start on Thursday with the DJIA down over 300 points, the S&P 500 down over 45 points during the session,  the Russell 2000 shed 29 points and the NASDAQ 100 sank 85 points during the day. The charts (daily) below continue to indicate support to complete the corrections lies well below current levels.  I would anticipate a few additional “ugly” days of downside activity.   Longer-term I still believe the broader indexes will move to additional new highs before the advance is complete. 







S&P 500







Russell 2000











Repeated from previous blogs, as it remains very important. 


It is interesting times in which we live and choose to trade.  I have advocated changing strategies as a trader in becoming more of a day trader (no overnight risk) versus carrying positions.  This remains important during times such as these.  When the dust settles it will be important to have the cash to invest for the next move. 



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. 


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.


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)