June 4, 2013

Logical Market Update: The Trend is Your Friend – What Goes Up Must Come Down

The Trend is Your Friend – What Goes Up Must Come Down


There are several observable trends that take place, which are notable and worth keeping on eye on.  Some happen with great fanfare and others seem to occur without ever getting to center stage.  Nonetheless, the opportunities remain for those traders willing to expand their trading parameters. 


The first is interest rates. (Chart below courtesy of Yahoo Finance) May was a difficult month for bonds.  Interest rates on the 30-year Treasury Bond rose sharply from 2.85% to 3.3% and was the largest one-month spike over the past four years. 


The rise in yield produces a drop in bond prices as seen in the 30-year Treasury Bond futures (Chart below courtesy of ThinkorSwim).  The move appears somewhat parabolic and extended suggesting rates will drop back down over the next month or so.  The velocity of the move could be aided by a continued weakness in the broader market indexes creating a “flight to quality” type move. 




I also have previously discussed the volatility crush seen for most of 2013.  The Volatility Index (VIX) reached a low of 11.05 in mid-March and 12.26 most recently in mid-May.  Since volatility has spiked higher reaching 17.75 yesterday.  It would be easy to say that low volatility is followed by high volatility but that might seem redundant.  Monitoring volatility as measured by the CBOE’s VIX index aides in keeping a pulse on what I call “the complacency/fear factor”.  During market rallies traders tend to become complacent or fearless of a market decline.  The opposite then occurs when the decline does kick in. 




Expectations currently would be for an additional run up in volatility towards the 19 area before all is said and done.



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. 




Updated Charts


They say a picture is worth a thousand words — Take a look at the charts below to see that the DJIA and NDX have expanded their ranges a bit and how a 463 point drop in the DJIA, a 57 point drop in the S&P 500, a 39 point drop in the Russell 2000 and an 105 point drop in the NASDAQ 100 fit into the mid to long-term picture.  Barely a scratch!  The arrows indicate the support area (that) likely (will not) be reached during this corrective round.  All zones are (now – well) above common Fibonacci support at the .382 levels. (Click on the chart to enlarge)







S&P 500



Russell 2000











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)