May 21, 2013

Logical Market Update: Just When You Think You Have Heard It All – “The Tuesday Streak!”

Just When You Think You Have Heard It All – “The Tuesday Streak!”


“What does Tuesday mean?” you might ask – “Why, this means the market goes up.  The last 18 Tuesdays have proved that.”  The Tuesday Streak in my opinion is right up there with “The market won’t go down” and witnessing a companies stock rally $100+ based on adding “.com” to their corporate name.  Yes, it really did happen.  This morning I read what Tuesday means to market traders.  The gist of it would have you believe that traders actually moved in as buyers today because it was Tuesday and for the last 18 Tuesdays the market has been higher, well I suppose it is now officially 19.  Just when I thought it couldn’t get any better.  


Despite additional new highs on Tuesday the overall picture for the markets has not changed.  The pattern in progress extended yet again, and I will add so long as the market continues to rise in 5 wave patterns and fall in 3 way patterns the trend remains “up”.  The necessity for a pull back, however continues, but as previously discussed 3rd waves are usually the longest and strongest within a 5-wave pattern and even against the backdrop of overbought and waning momentum the path of least resistance is up.   The waiting game for the shorts is painful as volumes drop off substantially and volatility or the lack thereof eats P&L for breakfast, lunch and dinner. 


This remains the reason I continue to advocate day trading versus position trading.  There are numerous opportunities in a myriad of indexes, ETFs, and futures to choose from within the equities, treasury, commodity, and precious metals markets.   


Day trading has increasingly become my first choice as the markets become more difficult to “read” and trade.


I use the stochastic overbought/oversold indicator and RSI momentum oscillators to indicate where money is flowing, where an imbalance of buyers or sellers occurs and a  “bull trap” or ”bear trap” forms.  


I believe that it only gets more confusing going forward as the market ignores “the writing on the wall” and continues higher with a false sense of security built on negative input.  Price volatility has increased with the broader averages easily moving 2 to 3 percent and as high as 10 percent intraday.  Many stocks have seen daily trading ranges average between 10 and 15 points, with one day being 15 points higher and the next being 10 points lower. 


This type of action is the primary motivation behind my advocating switching strategies if necessary and focusing on day trading and less on position trading.  I do believe there are discernable longer-term positions investors should consider and implement, but the near to mid-term market gyrations have produced far more profitable day trading opportunities without overnight risk. 


I continue to recommend 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. 


 While I remain firmly in the bullish camp over the mid to long-term I have been expecting and anticipating a correction to begin for the past couple of weeks. The patterns to the intraday highs on Tuesday again show completed 5 wave patterns which in turn complete larger 5 wave patterns which again in turn complete yet a larger 5 wave pattern. 


The Big Picture:


Staying in touch with what your “big picture” is critical.  I spent some time recently updating all my long-term charts.  This was important as it gave me a very clear perspective on how large of a correction should be coming.  While my expectations is for a decent “slap-down” to occur it is not the “mother” of all corrections as some have forecasted.  For example:


All of the broader indexes (DJIA, S&P 500, Russell 2000, and NASDAQ) began their perspective rallies off of the March 2009 lows.  I fully expect additional new highs (several) for the DJIA, S&P 500 and Russell 2000.  The NASDAQ may have reached its peak(s) in 2000, however I don’t think it would be wise to exclude them just yet.  All the patterns are very similar in size and breadth with smaller differences likely within the internal counts.  Therefore based on this it appears that an across the board correction is due – but again not the collapse that many are forecasting.  That is at least a year or more away. 


So, what can be expected?  Smaller 4th wave corrections within the context of larger (Cycle degree) 3rd wave advances.  Here then are the updated levels for the:


DJIA – Support begins at 14840 to 14420 – additional support zones are below at 13,931 and 13587.  I would not be looking for a drop into the second or third zone, but rather for the top end to the middle of the first support zone to contain the move and set the stage for the rally to pick up again and take the DJIA to additional new highs.


S&P 500 – Support begins at 1600 to 1547 – additional support zones are below at 1508 and 1469.  Again, I am not looking for a more serious drop which would take prices into the second or third zone, but the top to middle of the first zone to contain the move.  Here as well expectations would be for the rally to pick up again and move the S&P to new all time highs.


Russell 2000 – Support begins at 957 to 900 – additional support zones are below at 882 and then 854.  While a stronger drop can not be ruled out as the Russell has tended to be the weak link previously – but the Russell along with the QQQ’s are more tech laden and that has added stronger upside momentum with the Russell 2000 breaking above the all important 1000 level on Monday.



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)
  • S&P-500 future (e-mini available
  • US$/Euro futures (e-mini available) – very highly recommended
  • GS (Goldman Sachs)
  • 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 – may get quiet
  • 10-yr Treasury Note future
  • TLT (Treasury Bond Long ETF)
  • TBT (Treasury Bond Short ETF)