April 16, 2013

Logical Market Update: Has the All Clear Been Sounded? Was that the Correction? Precious Metals Attempt to Rebound

Has the All Clear Been Sounded?  Was that the Correction? Bears and Bulls Battle for Control as the Precious Metals Attempt to Rebound  


Last Friday’s thrashing of the Precious Metals markets brought on by a “crash” like sell off in gold was precisely what I was discussing in last Thursday’s blog. 


It took many years but I now embrace the philosophy that markets move to “maximum pain thresholds” forcing the weak hands to finally give up and run for the exits.  But deep in the markets historical psyche lays the deeper truth to this statement. 


Markets exist to facilitate trade – to provide a place where buyers and sellers can transact.  A well-run exchange (market) creates an atmosphere, which allows price to become a volume seeking mechanism.  Is this not why the markets tend to gravitate where the majority of people will be forced to trade whether or not the trade is a winner or a looser.  Would this not be more logical as to how the view began that the markets actually seek out these “pain points.” 


This is virtually what took place with gold prices (via the futures) last Thursday, Friday and Monday.  There were no solid fundamental reasons for the huge sell off.  Technical reasons abound and the premise that “price indeed became a volume seeking mechanism” rang true.  Stops being triggered along the way increased the downward pressure on prices and bids evaporated as sellers increased.  The Far East markets adding to the carnage primarily created Monday’s $165 plunge and the events in Boston added to the selling pressure.  Again, stops were triggered as the next “pain threshold” was found again and again. 


Reasonably the precious metals markets are somewhat skittish as volatility demonstrated on Tuesday.  I expect this to remain the case until stability of direction has been established whether that be up or down.  I need to add that the drop off of 1600 began with momentum oscillators in oversold territory.  After, the oscillators are now registering deeply oversold.  Will it stop the sell pressure?  Remember markets can continue in extreme oversold or overbought readings for extended periods of time.  It is prudent to not to attempt to catch a falling knife, but rather allow the market to stabilize and reveal a tradable entry point. 


The Diversified Trading System used together with Trade Manager produced several impressive signals in Gold and Silver futures, GLD and SLV – gold and silver ETF’s and several mining stocks where Trade Manager shined by adjusting trailing stops and being accurate in calculating the depth and speed of the decline. 


The equity and treasury markets broke down on Monday with the Russell 2000 again leading the way lower for most of the session.  Again, I want to emphasize that algorithmic computerized trading increases the volatility and volume across the board.  Tuesday’s quick rebound nearly erased most of the damage created on Monday.  Leaving many to speculate as to whether Monday was the beginning of the long awaited corrective phase discussed within last Thursday’s blog.  I can present a case that the markets may first push to new highs (DJIA and S&P 500) before again correcting within the larger context of a 10 to 20% drop. 


Here is I will be looking for to confirm a final surge to new highs before the larger correction begins:  The Russell 2000 should contain any initial selling above 910 (basis the June future) and rally breaking above 929.20 with follow through.  The DJIA needs to contain selling above 14663 and break above 14779 with follow through.  The S&P 500 needs to contain selling above 1563 and break above 1580 with follow through. 


Breaks below the support given would strongly suggest the next leg down of a larger correction is in force.


The US $/Euro has quickly run into extreme overbought readings.  Resistance above comes in at 1.323 to 1.3345.  I suspect this zone (lower end) to contain additional upside prior a more substantial pull back takes place.


Trading profitably will require the use of a trading system that has been built using algorithms that have been tested and tested again.  The Diversified Trading System has been designed and built by traders for traders of all experience levels, from novice to expert.  The DTS Hawk, Falcon, and Eagle (the birds) are the best trading platform available for use on the Ninja Trading platform.  When used together with Trade Manager all of the guess work of risk management and entry and exit strategies has been removed, allowing a trader to – trade well. 


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 using Trade Manager   


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.