Logical Market Update: Sell Signals Mounting – Cash NOT as Enthusiastic as Futures – Volume Drops – Short/Steep Correction Likely

March 12, 2013

Logical Market Update: Sell Signals Mounting – Cash NOT as Enthusiastic as Futures – Volume Drops – Short/Steep Correction Likely

The Sell Signals are Starting to Register – Should Provide Shorting Opportunities. Indexes NOT as Enthusiastic as Futures.  Volume dries up. Correction Likely and may be Short and Steep.

Don’t get caught up in the hype of the DJIA squeezing an additional new high into the close on Tuesday.  The markets are now in extreme territory and arrived on declining volumes.  Apathy and complacency are also reaching sky-high levels and the combination is not healthy.

I suspect sellers will begin to move in and I’ll be checking for signs of weakness (likely from the Russell 2000) to lead us into the next correction.  The stubborn nature of the advance suggests that any correction will be short and steep.  A quick slap down is needed to bring a sense of reality back.

With options expiration basically just around the corner on Friday, leaves me to believe that Wednesday and possibly Thursday will be corrective.  The pattern I will be looking for is again two declines separated by an intervening rally (small) and similar to the end of February in pattern, but most likely smaller in depth and velocity.  

The bond market rallied across the long end of the curve, which brought a much needed break to the treasuries.  As in the equity markets though, I suspect it will be short in duration and distance.

Again, it is these corrections that I continue to bring attention to as points where momentum be it upward or downward gathers and seems to clear the board for the larger advance to pick up in earnest again.

Traders should remain in play as I suspect volume will expand as the markets continue to provide numerous trading opportunities on an intraday and short-term basis.  Diversified Trading Systems (DTS) via its three (scalper, swing, and trend) systems remains my choice to use offer a complete and unique system to trade with. 

 

Observations from this Tuesday’s trade and Expectations for Wednesday (3/13/2013):

The Russell 2000 has been the weaker of the indexes thus far this week.  However, the pattern off of last Friday’s high at 939.80 (basis the June future) has been corrective in look and has traced out a more sideways move which would be in line with the Russell putting in an additional high above 939.80 before turning more strongly lower in a corrective phase as I described above.  What would negate this thought would be a break below 930 with follow through.  For now, though I would continue to look for the Russell to move quickly above 939.80 and fail from higher levels.

The DJIA should be given the benefit of the doubt that it will also move above 14409 (basis the June future), although not likely by much, before starting the correct.  A break below 14293 first though would likely negate the upside move and clear the way for a corrective move towards support at 14221 to 14163.

The S&P 500 as well deserves to be given the benefit of the doubt in move above 1551.75 (basis the June future) before turning south to put in a correction.  A break below 1539.25 would negate the upside for now and signal the corrective phase is underway with a drop towards support at 1531.50 to 1525.25 in the works.

As for trading opportunities, the important factor remains to follow the trend and not your emotions.  Trading opportunities should pick up as the corrections get underway.  Equities, treasuries, and the US $/Euro should remain very active.

 

Here is an updated list of the markets that DTS (all three birds) are producing numerous signals and have been very profitable:

  • US$/Euro
  • GS (Goldman Sachs)
  • AAPL (Apple Computer)
  • GOOG (Google)
  • LNKD (LinkedIn)
  • NFLX (Netflix)
  • E-mini S&P 500
  • TLT (Treasury Bond Long ETF)
  • TBT (Treasury Bond Short ETF)

 

Expectations for Wednesday (3/13/2013) –

Support and Resistance:

DJIA (basis the June Dow future): Support at 14293, 14221, and 14163. Resistance remains at the 14400 level for starters and then 14600.

S&P 500 (basis June future): Support at 1539.25, 1531, 50, and 1525.25.  Resistance at 1555 to 1558 area before a more sustained correction would be expected.

Russell 2000 (basis the June future):  Support at 928.60, 921.70, and 916.10.   Resistance remains at 940 and then 946 to 950

 

Treasuries:

The treasury markets continue to recover.  Tuesday highs for the 30-yr bond (basis the June future) poked just above short term resistance at 141’20 and while there may be follow through upside yet to come I suspect that resistance at 142’05 to 142’22 will contain it.     Support 140’14 may seem light, with stronger support at 139’16.    Resistance is 142’05 to 142’22.

 10yr –note (basis the June future) also poked just above resistance at 130’15.  Additional upside may to be in the cards but additional resistance at 130’24 to 131 should cap it.  The next down leg may only slow and pay tribute to support at 130 to130’025, with stronger support below at 129’09.  Resistance is at 130’24 to 131 and then 131’15 to 131’22.

TLT – Resistance at 116’11 to 116’70.  Support now drops to the 114 area.

TBT – if the market is going to another attempt at break above 70 current level should hold.  Support at 67.89 should not be broken.  If it does break below this zone look for a move towards next support at 67.25 to 66.50.  Resistance at the 70 area has been tested and may continue to against the advance.  .