July 31, 2013

Logical Market Update: Market Update FED Comment – Much Ado About Nothing

Market Update: FED Comment – Much Ado About Nothing – Produces Numerous Trading Opportunities – MasterCard and Visa Swiped by Fed Judge

Wednesday was a traders dream type of day. There were plentiful opportunities across the board in equities, treasuries, precious metals, and commodities. Volumes increased which increased price volatility and velocity.

Today’s action was predicated on what the FED statement would reveal – which actually wasn’t (at least in my estimation) anything new. When the equity and treasury markets spurted higher after, it was as if it was the planned reaction no matter what the FED comment contained. Before all was said and done though, new all time highs in the DJIA, SPX, and recovery high for the NASDAQ 100 were quickly rejected with the market selling off into the closing bell. The large buy and sell programs that battled for the closing mark continue to capture my attention, as computers trying to perform the latest algorithm toss about huge sums of money.

The very tradable gyrations in both directions in all markets appear to have dragged momentum to the downside, which I found interesting because the momentum to push the markets higher was equal to the downside or so I thought.

The day’s trading action even with new additional highs for some indexes did little to alleviate the potential for a period of correction or consolidation. My expectations remain as previously discussed albeit from higher levels. To be clear, I am near term bearish but mid to long-term bullish as additional new highs are expected. I still feel that the FED will continue to dangle the carrot on the string into 2014 if not 2015. It will get even more interesting before all is said and done!

Anybody else notice the slap down action taking place in MasterCard (MA) and Visa (V)? MasterCard had a $59 range with Visa ringing in with a $24 range. All this after U.S. District Judge Richard Leon rejected a Fed regulation that limited swipe fees paid to banks by retailers. Basically, Leon ruled that the cap (set in 2011 at 21 cents per transaction) must go lower. Mega banks such as JP Morgan, Bank of America, Wells Fargo, and Citibank should feel the pinch cut deeper into the reported $16 billion in revenue from swipe fees, but it was trumped by the Fed comments leaving only MasterCard and Visa to get hammered. MasterCard recovered to close back above $600 but Visa ended towards the bottom of its range finishing at $177. The news has brought with it solid opportunities for day trading in both MA and V. Both stocks and options produced numerous trading opportunities. Smaller capitalized trading accounts are not left out here – trading options is less capital intensive on buying power and margin requirements.

Below are updated charts for the DJIA, SPX, RUT, and NDX.

DJIA (Weekly September future) click chart to enlarge

SPX (Monthly September future) click chart to enlarge

RUT (Weekly September future) click chart to enlarge

NDX (Monthly September future) click chart to enlarge

I am continuing to include the graph of the Federal Reserve’s outright holdings. This chart needs no additional explanation and is included to keep in perspective who has the motivation to keep it all going.

U.S. Dollar/Euro

The near term direction of the U.S Dollar/ Euro broke from its tighter range on Wednesday. After quickly touching the 1.3310 level in the morning, the rally lost steam for the better part of the day regaining after the FED comments reaching 1.3347. If bonds don’t continue to rally the U.S. dollar should. The Euro would be expected to drop back to support at the 1.2750 to 1.2675 area. The stochastic oscillator on a daily basis turned lower giving a sell signal on Tuesday from overbought readings. Longer-term expectations include the strong potential for a stronger more sustained rally favoring the Euro reaching up towards 1.38 to 1.40. This outlook bodes well if the wedge/triangle pattern proves correct as drawn on the weekly chart.

The Euro September future has been consistent in producing larger ranges over the past several weeks and remains high on my list for day trading. There are several contracts to choose from – the “full” future is valued at $12.50 per tick and the margin requirement is $3750.00 per contract. The “mini” future is $6.25 per tick with a margin requirement of $1875.00 per contract. The “micro” future is $1.25 per tick and the margin requirement is $375.00 per contract. So, this product neatly meets capital requirements for small, medium and large trading accounts.

Euro FX (Daily September future) click chart to enlarge

Euro FX (Weekly September future) click chart to enlarge

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

- SINCE 2002 -

NinjaTrader® is a registered trademark of NinjaTrader Group, LLC. No NinjaTrader company has any affiliation with the owner, developer, or provider of the products or services described herein, or any interest, ownership or otherwise, in any such product or service, or endorses, recommends or approves any such product or service.

Commodity Futures Trading Commission: Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results.

CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.