May 1, 2013

Logical Market Update: RUT Drops 2.5%, DJIA S&P 500 1%, Treasuries Embrace Zero %, U.S. $ Tumbles

Russell 2000 Looses 2.5% DJIA and S&P 500 Drop 1%.  Treasuries Embrace Zero % – U.S. Dollar Tumble

It was not surprising the S&P 500 headed lower on Wednesday dropping just under 1% after pushing to new highs on Tuesday.  The overall light volumes did though.  The lack of buyers did not precipitate a stampede to sell which waved the yellow caution flag to the many waiting patiently for the markets to slide off into oblivion.


The Russell 2000 was again the weakest link dropping 2.5% with the DJIA loosing 1% and the NASDAQ at less than one half percent.  Is it another set up where the markets will surge higher on the remaining earnings reports or is it just a slow start to what ultimately may shave 10 to 20% off of current levels?


Observations from Wednesday and Expectations for Thursday


Facebook (FB) reported on Wednesday – profit missed by one cent while revenue were just above estimates.  All eyes remain on Facebook’s mobile ad revenue growth which for the 1st quarter accounted for 30% of overall ad sales, which was up over 7% vs. the 4th quarter.  The stock in after hours trade was basically unchanged.  LinkedIn (LNKD) reports on Thursday after the close. 



The momentum oscillators off of the daily charts have given clear sell signals across the board within the broader indexes.  Which may leave the S&P 500 the sole placeholder for new highs until the next correction is complete. 


On an Elliott Wave basis there are many near term signals that suggest the correction is now underway.  All three indexes, (DJIA, S&P 500, Russell 2000) traced out 5 wave declines (hourly charts) off of yesterday’s closes, which is indicative of a trend change.  Again, keep in mind this is on a near-term basis.  Thursday’s trade should provide additional confirmation and that would come with the formation of 3-wave advances (A-B-C). 


Here are resistance levels that should contain the bounces before a stronger leg down begins:


S&P 500 – 1588, 1590, and 1592

DJIA – 14753, 14770, 14786

RUT – 933, 936, and 939


Restated Support levels for a Larger Correction


DJIA – support at 14550 while tested recently remains in place for now.  The next zone is at the 14500 to 14450 area, but eventually downside momentum will prevail with stronger support coming in at 14400 to 13750.


S&P 500  – Resistance remains at 1598 to 1600.  Support is at 1573, 1566, 1559, and 1550, with stronger support below between 1525 and 1475.


Russell 2000 – Support should be found at 920, 916, 912, and 906.  Ultimately, it remains highly likely that it could get very ugly for the Russell 2000 with stronger support seemingly far below at the 850 to 820 area. 


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 and GS. 




The 30-yr Bond (basis the June future) has sliced through Fibonacci 62% resistance at the 148’10 area finishing on Wednesday above 149.  The pattern in progress off of the March low at 140’27 has formed 5 waves up, which suggests the lows may be in for now with the 30-yr bond again heading above 150 and very possibly to new contract highs.  Near-term expectations would be for a 3-wave decline (A-B-C) with support for coming in at 145’31, 144’31, and 144.  


10-yr Note (basis the June future) has produced an identical pattern as seen in the 30-yr bond – a 5-wave advance.  Expectations would be for a 3-wave decline (A-B-C) to drop prices into support at 132’10, 131’29, and 131’16.


Precious Metals


Gold (basis the futures) started Wednesday on a strong negative note at several points being down over $20.  However, after the FOMC announced its intentions to either increase or reduce its monthly bond purchasing program gold jumped higher and continue higher in after hours trade.  Resistance remains at 1487 and this level would need to be left in the dust (strong follow through buying) before gold is out of the woods in terms of putting in another leg down before finishing the larger bear market decline. 


Silver as well began Wednesday’s trade probing lower levels before turning higher in step with Gold.  Resistance at 24.25 ahs been breached but surrendered on Wednesday putting it back into place for now.  Beyond 24.25 is 25, and 25.70, which is the level that would need to be “left in the dust” to give stronger confirmation that the lows are in for now. 


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)



From previous blogs –


Day Trading vs. Position Trading


Recent discussions have revolved around the necessity to toss out most if not all of your old trading ideas and join the ranks of algorithmic trading.


I advocate the use of overbought/oversold indicators and 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.