April 9, 2013

Logical Market Update: DJIA – S&P 500 Produce New Highs – Russell 2000 Shows Weakness – Precious Metals Strong

DJIA and S&P 500 Move to New Highs – Russell 2000 Shows Exhaustion and Weakness

The Dollar/Euro Remains Volatile – Precious Metals Again Strong


Initially I felt Tuesday’s trade would be narrow and slow as many participants wait for next round of earnings reports to include the “big boys”.  This remained the case for the first 30 minutes of trade and then the algorithmic computers were turned on and the “dogs of war” were set loose. 

The DJIA (June future) had a 119 point range, the S&P 500 (June future) a 13.50 intraday range, the U.S. Dollar/Euro (June future) a 100 bps range, Gold (June future) a $20 range, Silver (May future) an 88 cent range, Goldman Sachs (GS) moved in a $3.51 range intraday, Apple (AAPL) seemingly on the quiet side was somewhat range bound at a $5.75 range, Amazon was held to a $5.61 range and even Netflix and LinkedIn saw decent two-way trade with ranges of $9.65 and $6.95 respectively. 


Plugged into the best trading platform available – Diversified Trading System’s Hawk Micro Scalper, Falcon Swing Trader, and the Eagle Trend Trader it was again a day where “the birds were chirping”! 

Observations From Tuesday’s Trade and Expectations for Wednesday


The DJIA and S&P 500 spent the better part of the session working higher to new all time highs with the Russell 2000 remaining for the most part in negative territory.  Combined with the immediate selling that started right off the highs and the overbought readings doesn’t bode well for a serious break out from here.

Initially, the overnight sessions are seeing additional selling although not heavy (yet) it may impede any follow through upside on Wednesday.  Expectations at this stage would be for any additional new highs for the DJIA and S&P 500 to be minimal before another correction is put in.  It seems that the markets continue to paint themselves into a corner so to speak needing time to digest the current gains versus reality.

There are a slew of earnings due out this week with next week seeing some of the larger companies reporting.  Globally, there are a myriad of reasons for the markets to “stop, look and listen” before charging ahead into unchartered territory.  This doesn’t seem to be the case though, which is why I’m tending to stick with day trading versus carrying positions.  (More on this below)

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


Risk Management via Trade Manager


As defined by Wikipedia.com, risk management is the identification, assessment, and prioritization of risks (the effect of uncertainty on objectives, whether positive or negative) followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. 


Position sizing is likely the most important element of successful trading; it is the part of a system that determines whether or not you’ll meet your objectives.  This element of risk management determines how large a position should be traded based on account size (cash available), the current volatility of the instrument being traded, and your trade objectives.   Most if not all successful traders use an automated (algorithmic) system for determining position sizing and to be frank it is what separates winning traders from losing traders. 


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.

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.