February 14, 2013

Logical Market Update | The Markets Appear “Heavy” and That Might Pull Them Lower

The Markets Continue to Appear “Heavy” and That Might Pull Them Lower

There isn’t much to add to what I have been presenting this week. The markets remain overbought. The buying continues under thin volumes. Any downside action has been limited and quickly covered quickly. Traders are not willing to get caught short which suggests to me that the market continues to search for some solid reasons to take prices lower. I don’t think the buying is “new” buyers – and the sellers are poised and waiting to take profits or create shorts to profit from a correction. I’m not sure what will eventually pull down the markets. I don’t believe the ultimate tops are in, but I do see the necessity to correct some the “loftiness” currently being ignored.

Notable Action from Wednesday:

Treasuries (30 yr bond futures, 10 yr notes futures, TLT (long ETF)) saw steep declines. As I have stated before it doesn’t take much to upset the bond market. Even a slight rise in rates will produce on onslaught of selling, even against the words of the FED to hold rates lower through 2014. What may be the “stick in the spokes” is the decision by the BOJ to drop rates to deflate the Yen and boost their markets. Nonetheless, the treasury markets have fallen from very lofty levels and are now within some strong oversold readings. This on it own has not stopped the rotation out of bonds. But it may slow some and allow for a “bounce” before the next leg down begins.

The TBTF banks for the most part have jumped higher on the prospect of higher interest rates pulling in higher profits. Citigroup (C), Goldman Sachs, (GS), JP Morgan (JPM), and Bank of America (BAC) have almost single handedly kept the rally alive. The volumes have been better than the balance of the markets and I would continue to look for opportunity here for day, swing and trend traders (DTS users).

Here again is a brief list of the markets I have found DTS to very profitable:

• US$/Euro
• Japanese Yen against the US $ or the Eu
• GS (Goldman Sachs)
• AAPL (Apple Computer)
• E-mini S&P 500
• GLD (Gold ETF)
• SLV (Silver ETF)
• TLT (Treasury Bond Long ETF)
• TBT (Treasury Bond Short ETF)
• LNKD
• FB

Within the coming weeks I’ll be providing more details and suggestions on trading both equities and options using DTS trading signals.

Expectations for Thursday (2/14/2013)

I still think weakness in the Russell Index (RUT) will lead the balance of the markets lower. The Russell Index (RUT) continues to be where I believe the breakdown will begin and be sustained. A strong down day with high volumes should give a very clear sign of the turn.

I am continuing to look for more of a pull back.

Intraday Support and resistance zones (daily) to watch for:

DJIA: support at 13,800 and resistance at 13,965 to 14,150
SPX: support at 1500, 1495 and resistance at 1525 and then 1545

Treasuries:

30yr – support at 142’16 to 141’16 and resistance at 143’29 to 144’12
10yr – support at 131’14 to 131’06 and resistance at 131’22 to 131’26

TLT – support at 115.50, and then 115 and resistance at 116.30, 116.70, 117.15, 117.85, and 118.20
TBT – support at 68.25, 68 and resistance at 69.15 and then 69.65 – 70.00

Stocks:

AAPL: support at 465 to 452, 440 – 439 and resistance at 471, 485 and then 500
GS: support at 153.25, 152.70, 151, and resistance at 155 (light) and then 164
LNKD: support at 155, 150 and then 135 – resistance at 159 to 161. A break above 161 may see upward acceleration as prices move into “uncharted” territory.

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