August 9, 2013

Logical Market Update: From That to This & This…

 From that to this & this…

For most of this week the best trading has taken place within the first couple of hours of U.S. trading.  But it appears that once lunchtime rolls through the East and Central time zones volume does a vanishing act.  Which often leaves computers with nothing to do but switch over to selling volatility, which often leads to a resumption of the larger trend as volume returns for the last 10 minutes of trading.  A period of time between 10 minutes prior to 15 minutes after the equities markets “close” that is reserved for price marking. 

The bulls had a tough time making their case on Friday, even with an options expiration “pinning” got skewed with the indexes moving lower.  Russell 2000 traders saw fit to jump in strong this morning but quickly lost steam as the selling opportunities out weighed the buying opportunities.  Bonds, gold and silver did manage to hold higher levels as expected.  The Euro did not take its cue from steady to lower U.S. bond yields with the Dollar again gaining.  Here again, though, the bulk of the move took place during the European session leaving U.S. trade locked in a tight intraday range.  A stronger take away is that the Euro decline may be back underway barring any disruptions to the cross rates.


Next week is likely to kick off with some stronger weakness.  Current expectations favor additional downside as the markets correct and consolidate.  The line(s) in the sand lie well below current levels.  While I’m not looking for the mother of all corrections it may feel that way on an intraday basis.  The Elliott Wave patterns continue to favor a sequence of corrections with higher lows followed by rallies to higher highs still being in force.


Statistically and cyclically, September and October tend to be down months.  In fact, the most severe downside damage has taken place on a Friday or Monday in September and October and that would include the “crashes” of 1929, 1987, 2001 (Internet Bubble Burst), 2007 (Housing and RMBS), 2008 (Global Financial Meltdown).  Also taken into consideration were the “Flash Crashes.”  All in all during these periods the markets have corrected down.   Volatility has increased substantially; volumes have increased substantially as prices move with a greater velocity, and the move is felt across the equities, treasuries, precious metals, forex, and commodity markets all moving in tandem with regards to direction.


As a near-term and intraday trader the move I’m expecting also statistically carries a much higher probability of larger profits as prices swing in both directions.  This type of corrective period does not necessarily get contributed to anything that resembles reality – the larger decline that will be properly tied has yet to be realized.  In fact when it does happen most won’t acknowledge it until it is more than 50% complete.


What I’m looking for should be considered as more of a mini version – a practice session played out with real money.


I came across a site with some great pics of trading floors of old.  So as an old market maker (San Francisco, London, Amsterdam, and Frankfurt) and in fond remembrance of the years I stood shoulder to shoulder in numerous trading pits I thought it appropriate to share  —


Trading has gone from this:



 And this:



To this:



And this:


Which has produced this:





A “Gordian Knot” an often used metaphor for an intractable problem, such as disentangling the impossible knot by means of cheating or “thinking outside the box”, which is also known as “cutting the Gordian Knot.”



Using the Hawk Micro Scalper, Falcon Swing Trader, and the Eagle Trend Trader within the equities markets can produce strong results.  Trading equity options can be used to add “beta” to an existing trade or as “the” trading vehicle.   Be sure to check out Part One  – “Options Basics and Understanding Theta is Your Friend” of a seven part series I’ve written on “Trading Options Using the Diversified Trading System” by clicking here.


Indicator Warehouse


Indicator Warehouse has in my opinion the best platforms available covering a wide range of traders from novice to expert.


The Diversified Trading System from Indicator Warehouse offers cost effective products that allow 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).    In the near future I will be adding options strategies to the trading list. 


Here is an updated (7/31/2013) 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.
  • V (Visa) – stock and options – recommended – large swings in both direction likely
  • MA (MasterCard) stock and options – recommended – $600 stock – large swings likely
  • 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
  • EURO FX (futures, mini and micro contracts available) very active suitable for all account sizes







Have a Great Weekend! —