June 13, 2013

Logical Market Update: The Tectonic Shift in Global Markets – The Status Quo!

The Tectonic Shift in Global Markets – The Status Quo!


So what has everyone on edge in the markets?  It is something I have discussed previously and will continue to discuss.  The Status Quo is changing.  It is shifting away from what has been perceived as “given” for years.  Conventional Wisdom is old, ancient and hazardous to everyone’s financial health.  The corrections that have rumbled across the globe are real.  It may have taken some time for the underlying momentum to change, but change it has.  Perception is NOT always reality!


Real Interest rates in the U.S. are nominal interest rates adjusted for inflation.  So, logic tells us that if interest rates are rising (check out the Treasury Market charts below) and inflation if falling (jury is still out on this one), that is going to cause real interest rates to rise rapidly.  In turn this makes the U.S. dollar more attractive since investors want to have something in their pockets that pays more.


Take a look at the chart below of the 10-Year TIPS Yield (Courtesy of Business Insider)



Bond markets around the globe are selling off as rising interest rates in the U.S. make U.S. Government debt more palatable for investor.  Yes, this should be interpreted as a sign of good things coming, but it is rattling the nerves of the global markets.  I’ve said it before it doesn’t take much to upset the bond market and if the perception is that there is a strong prospect of the monetary stimulus being pulled back or worse removed from the market by the Federal Reserve.  If the markets believe that the Central Banks around the globe can’t keep control of the long-term interest rates which has been the backbone of the rally that began following the financial crisis of 2008-2009 things might just get a bit uglier.


Wednesday’s sell-off was an across the board affair.  Equities, treasuries, precious metals, and commodities – it was a run to raise cash.  Don’t be fooled into thinking that the money leaving bonds was being put into the stock market or vice versa.  It wasn’t happening that way, at least not yesterday. 


It is interesting times in which we live and choose to trade.  I have advocated changing strategies as a trader in becoming more of a day trader (no overnight risk) versus carrying positions.  This remains important during times such as these.  When the dust settles it will be important to have the cash to invest for the next move. 


I am including some strong words of wisdom from Cullen Roche the founder of Orcam Financial Group LLC.

Pessimism is not to be shunned in portfolio management, but there is a time and place for it. The persistently pessimistic asset manager is fighting very powerful long-term positive trends that make his/her life exceedingly difficult. It is, in my view, not a sustainable or optimal view from which to construct a portfolio strategy.


There’s a tendency in the investment world to allow your feelings and biases drive investment decisions. If we see the market going up when we’re not participating we feel like we’ve missed out.


It’s natural to say, “I’ll wait for it to come back down so I can get in where everyone else got in”. One of the hardest things to harness in the investment world is this perception of being “left behind”. But you can’t manage your portfolio with such a destructive mentality. The investor who views the investment world through this prism is like the poker player who doubles down just because he/she lost the last hand. That’s not prudent money management. You must play every hand as if it is its own.


You cannot let past mistakes excessively drive future decision-making. Instead, we must learn from mistakes so that we can avoid making them in the future. Excessive pessimism is the worst kind of mistake an investor can make.


I view the human being as a species that is always pushing forward, always striving to improve, break new records, and exceed boundaries. This doesn’t mean there will be no mistakes along the way or that the human being is incapable of hardship. Rather, we should embrace this long-term trend, but approach it with measured optimism, even a bit of skepticism. But fighting it through persistent negativity is almost guaranteed to be a losing battle. Portfolio construction should be based on the same basic mentality.  ( Courtesy of Cullen Roche © November 2012 Orcam Financial Group LLC



Diversified Trading System


I continue to recommend as 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. 


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).    


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) – 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) – very highly recommended
  • GOOG (Google) – very highly recommended
  • LNKD (LinkedIn) – solid intraday range
  • NFLX (Netflix) – solid intraday range
  • TSLA (Tesla Motors) – highly recommended  
  • 30-yr Treasury Bond future – did not get quiet – opposite took place
  • 10-yr Treasury Note future
  • TLT (Treasury Bond Long ETF)
  • TBT (Treasury Bond Short ETF)
  • Gold (futures and ETF – GLD)
  • Silver (futures and ETF – SLV)