July 24, 2013

Logical Market Update: The Bull’s Got Nerves of Steel & —

The Bull’s Got Nerves of Steel & – Yeah Right! Whatever! Good Luck With That!

The bull’s got a brass pair! Wednesday’s market action did not satisfy any criteria as a correction at least from my perspective. The bulls continue to throw more and more cash around appearing to be trying to suck in any last “on the fence” buyers. Or could they be demanding a complete capitulation by the shorts using this tactic as if it were a part of the surrender agreement. The fat lady may be warming up, but thus far the fatter players don’t have all the right positions in place just yet. Off-loading massive amounts of risk takes a toll on a trader — yeah right!

However, in my view there appears to be a much larger pool of market players that believes the higher risk is for prices to stay at current or higher levels – in the equities markets that is at all time highs for the DJIA, S&P, and Russell indexes and recovery highs for the NASDAQ. Even though Mr. Bernanke and the FED continue to appear relaxed and in control and at this moment – the 10 year note and 30 year bond traders are no longer buying the hype or news. It appears more as if they are attempting to get the “jump” on the FED. The inevitable bursting of the weakening credit bubble seems to have been moved forward somewhat. And do not write off the controller of the printing press. There could still be a last gasp effort made by the Treasury to prop up the markets into next year. The graph below tells the story of who is long and who has more at stake if the belief in the faith and good credit of the United States takes a tumble or stumble – whatever.

I would find it hard to accept yesterday’s meager decline and today’s shallow attempt as the correction previously discussed. That doesn’t preclude the powers that be pushing the broader indexes deeper into record highs and overbought. Some consolidation is necessary and the higher things go puts the odds for a higher velocity of the drop lower. If you have even been on an aircraft that suddenly drops into an air product, you get the picture. If the FED closes down the buy side, I don’t see the TBTF players putting up any of their money to continue the play. Which leaves the FED in a bind to turn seller without drawing too much attention – good luck with that!

Thursday’s Outlook

Wednesday’s earnings have left a pall of buying in the air as the After-hours sessions get going. FB and BIDU both climbed to the topside of their respective ranges. Which in turn has likely created some short covering in other issues. I don’t want to appear complacent but I get bored quickly when the S&P 500 creates the day’s trading range within the first 10 minutes of trading. This type of action though is likely to carry through the balance of earnings season at least until all the index titans have reported. Downside projections remain valid as previously discussed and should be updated if and when any of the indexes moves to a new high.

Treasuries, dropped into the next leg down. Both the 10-year note and the 30 year bond were held at resistance and have now given up sufficient ground to lean near term down. While there may be several additional days of hard selling, initially support could soften the blow and provide moments to catch your breath. At this point I’m not looking for the larger decline to kick in just yet. The 10-year note September future should find some stronger support at the 125’25 area before another rebound rally takes over. The equivalent level basis the 30-year bond September future is the 131’16 area.

Gold and silver continued to unfold in the expected pull back. The chart below of the gold August future has possible Fibonacci support zones. The 1308 to 1303 area could contain initial weakness before a bounce. Ultimately though I would expect the 1283 to 1263 area to be visited before a more pronounced bounce kicks in. In silver the pattern is not as positive, but the equivalent levels are 19.80 and then 19.60 to 19.40. In silver there is a greater risk of upside failure producing a stronger sell off than in the balance of the precious metals complex, so the support zones given may prove to be small resting spots on the way to below 19.

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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 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
S&P-500 future (e-mini available) – highly recommended
Russell 2000 future (e-mini available) – highly recommended
NASDAQ 100 future (e-mini available) very highly recommended
US$/Euro futures (e-mini available) – very highly recommended
GS (Goldman Sachs) – good two way volume –
AAPL (Apple Computer) – highly recommended
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

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