New Highs Again for the DJIA and S&P 500 – Russell 2000 Plays Catch Up – Treasuries and Precious Metals Get Slammed – The Rollercoaster Ride Continues!
I wasn’t surprised to see the markets higher this morning when I logged in to trade. I even mentioned it in yesterday’s blog, but after 30 minutes of trade the algo computers were turned on and once again – it became a one-way ride to new highs.
I kept telling myself that computers don’t have emotions they just run a program and do. It is a safe assumption, I think, that the firms that use this type of trading are for the most part hedging. Position traders that are contrarians are getting their collective butts kicked – even though they have good reason to believe a reversal is due. It is difficult to trade intraday just to stay even with the positions that are loosing, not to mention frustrating.
So, what’s the point? If you can’t beat them – join them. As I have discussed previously it only gets more confusing and difficult going forward. Markets are going to get whipsawed back and forth as the larger pattern in force (a long term advance that began off of the March 2009 lows in equities) unfolds and finally comes to a close. An advance that will become more relentless in degree as prices ultimately go parabolic against a backdrop of ever increasing negative input.
In order to successfully trade in today’s markets you will have to leave many preconceived ideas and most emotions at the door before you begin to trade.
Trading profitably will require the use of a trading system that has been built using algorithms that have been tested and tested again. The Diversified Trading System has been designed and built by traders for traders of all experience levels, from novice to expert. The DTS Hawk, Falcon, and Eagle (the birds) are the best trading platform available for use on the Ninja Trading platform. When used together with Trade Manager all of the guess work of risk management and entry and exit strategies has been removed, allowing a trader to – trade well.
Observations From Wednesday’s Trading Action and What Thursday May Bring
Trading ranges continue to supply ample amounts of opportunities in the major indexes, treasury markets, precious metals and many equities. such as Apple Computer (AAPL), Amazon (AMZN), Google (GOOG), Netflix (NFLX), and LinkedIn (LNKD) to mention a few. Many ETF (electronically traded funds) are also trading in expanded ranges with sufficient volume to provide for the most part a smaller spread between the bid and offer. In precious metals – GLD and SLV, treasuries – TLT (long bond) and TBT (short bond), equities – SPY, DIA, IWM and the QQQ will move in lock step with their broader index counterparts – the S&P 500, DJIA, Russell 2000, and NASDAQ 100 respectively.
Wednesday’s action drove all the major indexes and equities into extreme overbought readings. A point to remember is that markets can remain overbought or oversold for extended periods of time. It is for this reason that I also use and monitor momentum oscillators to get a better gauge of where the money is flowing.
Here is a quick list of how (basis the stochastic oscillator on the daily chart) markets will begin on Thursday:
- DJIA (June future) – extreme overbought
- S&P 500 (June future) – extreme overbought
- Russell 2000 (June future) – overbought
- Apple (AAPL) – neutral and pointing higher
- Amazon (AMZN – just reaching overbought (still pointing higher)
- Netflix (NFLX) – oversold
- LinkedIn (LNKD) – just reaching overbought
- 30-year Bond (future) – neutral (pointing lower)
- 10-year Note (future) – neutral (pointing lower)
- Gold ETF (GLD) – oversold (still pointing lower)
- Silver ETF (SLV) – neutral (point lower)
- US $/Euro (future) – turned lower from extreme overbought (gave a sell signal today)
Earnings season has yet to jump in full swing but it appears there is much anticipation leading into several reports. I continue to suspect that a correction – (down in equities, up in treasuries, down in the US $/Euro, up in Precious Metals) is due and the harder prices are driven to an extreme the more likely the correction will be more sharp and precipitous in direction.
Globally, there are a myriad of reasons for the markets to “stop, look and listen” before charging ahead into unchartered territory. This doesn’t seem to be the case though, which is why day trading versus carrying positions should produce a stronger P&L. (More on this below)
Here is an updated list of the markets where I have found that DTS (all three birds) are producing numerous signals:
- DJIA future (e-mini available)
- S&P-500 future (e-mini available
- US$/Euro futures (e-mini available)
- GS (Goldman Sachs)
- AAPL (Apple Computer)
- GOOG (Google)
- LNKD (LinkedIn)
- NFLX (Netflix)
- 30-yr Treasury Bond future
- 10-yr Treasury Note future
- TLT (Treasury Bond Long ETF)
- TBT (Treasury Bond Short ETF)
Risk Management using Trade Manager (Repeated from this week’s blogs)
Position sizing is likely the most important element of successful trading; it is the part of a system that determines whether or not you’ll meet your objectives. This element of risk management determines how large a position should be traded based on account size (cash available), the current volatility of the instrument being traded, and your trade objectives. Most if not all successful traders use an automated (algorithmic) system for determining position sizing and to be frank it is what separates winning traders from losing traders.
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.