July 29, 2013

Logical Market Update: Equity Index Market Update

Equity Index Market Update

The last three trading sessions have appeared to be mirror images of the same trading strategy.  Amazingly, there are players out there (large players) that still believe manipulation goes unnoticed and their tactics on how they manipulate is legal.  The fact is it isn’t but there is little being done about it and nothing will likely befall the culprits in the long run.  Score one for the HFT – algo-computer traders. 

Price marking was frowned upon and actually still is frowned upon, but that just doesn’t seem to stop the petty and greedy from doing it day in and day out so that their positions squeeze out every last penny possible.  Reality will eventually catch up and deliver a blow so severe that a recovery won’t be possible.  Eventually, arrogance will be the downfall of many. 

 The last three trading sessions all began the same way, lower prices and moderate selling pressure.  However, once that abated the markets spent the balance of the session marching back to unchanged and then higher into the close on fairly low volumes. 

The last 30 minutes of trade has become a war zone between the bulls and the bears – just watch the TICK to see how big the buyers and sellers are and how quickly they flood the market with orders.  It often does provide the nimble and quick trader with a rewarding trade.

The chart below needs no additional explanation and is included (yet again) to keep in perspective who has the motivation to keep it all going.



Equity Markets

The broader indexes appear to still be in the process of finishing advances that began off of the mid June lows.  Past discussions have included that the advance on an Elliott Wave basis has sub-divided numerous times and each of those subdivisions requires a sequence of small corrections followed by an additional run to new highs.  I don’t find the patterns in progress bullish but I have seen in the past a move to new highs occurring before a stronger down move begins.  There doesn’t seem to be any fundamental changes that would provide a solid base from which to build a stronger push into unchartered territory but for what ever reason it seems that somebody out there wants to run up to 15600 in the DJIA, 1700 in the S&P 500, 3100 in the NASDAQ 100 and 1075 in the Russell 2000.  Is it possible – absolutely.  Is it probable – yes, but don’t expect much fanfare should it occur. 


If new highs are achieved I will update downside targets for the expected corrections.  Remember, the next stronger downside move will most likely be kicked into gear by some “surprise” to the markets.  The size of the moves though remains the same as previously laid out.


In the DJIA that would be a 5.5% to 7% drop, for the S&P 500 that would be a 6.2% to 8% drop, the Russell 2000 a 7.5% to 10% drop and for the NASDAQ 100 a 7% to 18% drop.  With the strong support coming in over the past week I am leaning heavily in favor of these corrections still waiting on the sidelines to begin.  Look for a kick off to come in the way of a 200 to 300 point drop in the DJIA, a 20 to 30 point drop in the S&P 500, a 15 to 20 point drop in the Russell 2000, and a 75 point or greater drop in the NASDAQ 100.


The charts below have been updated through Monday (7/29/2013)





S&P 500



Russell 2000








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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).    In the near future I will be adding options strategies to the trading list. 


Here is an updated (7/29/2013) list of the markets where I have found that DTS (all three birds) are producing numerous signals.  Continue to bear in mind that there are days when trading opportunities are not as plentiful.  These are days when not trading is likely more profitable than attempting to “force” a trade”:


  • DJIA future (e-mini available) – highly recommended for experienced traders
  • S&P-500 future (e-mini available) – highly recommended large intraday moves.
  • Russell 2000 future (e-mini available) – highly recommended can lead in either direction.
  • NASDAQ 100 future (e-mini available) very highly recommended and dominated by AAPL, AMZN, NFLX, GOOG, and TSLA
  • US$/Euro futures (e-mini available) – very highly recommended – easy to trade afterhours as well.
  • GS (Goldman Sachs) – good two way volume –
  • AAPL (Apple Computer) – highly recommended – Options trading as well
  • GOOG (Google) – highly recommended
  • LNKD (LinkedIn) – solid intraday range
  • NFLX (Netflix) – solid intraday range
  • TSLA (Tesla Motors) – highly recommended 
  • 30-yr Treasury Bond future – highly recommended
  • 10-yr Treasury Note future – solid two way trade
  • TLT (Treasury Bond Long ETF) – very active
  • TBT (Treasury Bond Short ETF) – very active (moves inversely to TLT)
  • Gold (futures and ETF – GLD) very active – not suitable for all traders
  • Silver (futures and ETF – SLV) – very active – not suitable for all traders