May 27, 2014

Quiet Trade Continues – So Does the Upside Push – Tuesday’s Chart $TSLA

writingonthewallThe warning signs continue to flash, but it appears nobody is paying attention.  Or so it seems.  Volume levels continue to be on the light side outside of AAPL, BAC, FB, and TWTR, plus the usual suspects within the ETF realm – IWM, QQQ, SPY, TNA and GDX (gold miners).  Quiet markets keep the phone calls coming though as traders check in with each other as to what is going on, what is keeping the US markets on an upward trajectory, when the balance of the global markets have taken a slightly more defensive posture.  To be honest, I couldn’t wrap it up into a neat package with a nice bow on top.  There remain several factors towards the continued rally in the NDX and RUT.  With the RUT continuing to be the leader in terms of percentage moves.  Tuesday’s climb was again in excess of 1% in both the RUT and the NDX.  The SPX cruised to new all time highs on Tuesday to start the week.  The DJIA looked to be willing to follow suit but ran out of steam and capital flowed more towards tech and biotech stocks.


Gold got hammered on Tuesday as the 30-year bond shot higher and the US Dollar slipped.  Is the gold rally over for now?  I don’t think so – but as is commonly known and accepted – nothing goes straight up or down.  The pattern left after today’s decline in gold continues to signal that the move itself is corrective, which suggests the larger trend should continue to be up.


On Tuesday I was again asked, “What is driving the markets higher when there isn’t anything so bullish about the economy or the outlook for stocks.”  My observations remain that it may depend on who the individual traders are that are present.  The index arbitrage traders continue to rule the roost as June expiration gets closer.  The interest factor within the fair value calculations continues to contract and it appears that this produces a larger more one sided approach from the index arbitrage traders as positions are adjusted.  Keep in mind that these trades are not designed to carry one side of the trade unhedged.  What keeps the upside intact in part can be contributed to traders needing to adjust large positions, against a market that is experiencing light volumes.  Add to this, that many traders can’t wait to hedge or complete the arbitrage once either buying or selling the basket of stocks has initiated the trade and the competition to get a fill heats up.  Also bear in mind that this is just one group (a large group) that participates in the markets every day.

bottom-line-picThe bottom line does become whether it is important to understand what is taking the markets higher or to free up that thought process and focus on what the market is giving on that particular day.

The technical picture for the broader indexes continues to show strong overbought readings.  This alone though will not stop the buyers, but when added together with other indicators it does begin to show areas where a reversal may occur.  The longer term view also remains overbought.

Trading the number remains key to being able to reduce and separate the “noise” from opportunity.  This takes knowing and executing a well-defined strategy and allows you to see opportunities amongst the “chaos” and by trusting the mechanics of your strategy, be able to take advantage of them. 

wellofopportunityOpportunity continues to knock on our doors.  While it doesn’t come without risk, risk can be defined and more manageable. Volatility and broad moves are exactly what a day trader desires and being able to respond without questioning is a luxury many are unaware of.

Check out today’s chart on $TSLA for trades and discussion.

5-27-2014 4-03-25 PM_TSLA_FALCON