February 22, 2013

Logical Market Update | Trading Opportunities Across the Board | Treasuries and Precious Metals Back to Life

Has the Tide Turned – No – It Is Just a Correction – Trading Opportunities Are Available

It took just about 10 trading hours between Wednesday and Thursday to completely wipe out all of the gains for 2013. Check it out for yourself – look at the S&P, or the DJIA, or the Russell 2000. Amazing how quick the tide can turn and upset the apple cart! But the good news is the trading action has let loose the “dogs of war” with trading volumes returning and two way trade (yes really) in play again.

Observations from Wednesday and Thursday’s Trade:

The broader market indexes didn’t fair so bad, but some individual stocks took it on the chin. The big boys – AAPL, GOOG, GS, NFLX, LNKD and FB to name a few. All the fluff got knocked right out – and the funny thing was that on Thursday morning some traders thought it was prudent to take GOOG back above 800. What an opportunity that was. All three Diversified Trading System birds (trading software) caught the move in GOOG in both directions. Also AAPL, GS, NFLS, and LNKD.

Now here is the catch with the type of correction that is unfolding in the broader markets indexes. It is comprised of 3 somewhat larger legs – 2 declines separated by a rally. Thus far, Thursday’s lows look to have completed the initial down leg of the correction with the recovery into the close the start of an intervening rally. If all holds true to form the markets should continue higher tomorrow. (Check the numbers below for resistance levels) Once the “bounce” is complete though expectations would be for an additional down leg of the same magnitude as we saw on Wednesday and Thursday morning.

Trading opportunities are plentiful across the board. Equities, treasuries, and precious metals have sprung back to life. Again, I will add that I do not believe we’ve seen the tops in the DJIA, S&P, or Russell 2000. The markets would have to truly break down (as in 750 points or more in the DJIA) before the picture would turn long term negative. And to be frank I just don’t see that happening right now. Could it – of course – there are a myriad of reasons for the market to fall – for the U.S. $ to spike higher – for gold, silver and platinum to head higher in break neck speed – and for treasuries to make the decline thus far seem like a run in the park.

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)
• FB


Expectations for Friday (2/22/2013)

Resistance areas that should contain the bounces in progress:

DJIA (basis the March Dow future): support at 13,800 contained the initial leg down – the bounce has already reached first resistance at 13,897, next up is 13,924, and then 13,950. If the next leg down begins DO NOT expect 13,800 to provide anything more than a place to stop and catch a breath. Ultimately the decline should drop the 13.650 to 13,600 area.

SPX (basis the cash): the S&P 500 tumbled off the 1530 high in a perfect Elliott 5 wave decline to set the stage for a rebound rally. Resistance begins at 1510, and then 1514 with 1518 being topside resistance. Again, don’t be fooled with support at the 1500 area – it won’t hold! The next leg down should be another Elliott 5 wave structure that will likely mirror what we saw on Wednesday and Thursday. Support for that move comes in at 1465.

Russell 2000 (basis the future): It may have taken Russell a bit more time to gather momentum but once it kicked it this index again fell harder. Also dropping off the 933 high in a perfect Elliott 5 wave decline the Russell shot up off of the 900 area believing that level would hold. For now it should – resistance for the bounce in force now begins at 911, then 916 and topside resistance at 920. The more likely zone to contain this move would be 911 to 916. Support for the next leg down (remember the drop itself should resemble what we just saw happen on Wednesday and Thursday) comes in at 885; so don’t be fooled if momentum takes a breath at the 895 to 900 area.


30yr –the pattern in progress is not all that bullish, which continues to suggest interest rates are going higher. Basis the future intraday support is at 143’12 to 143 and resistance at144’12 to 144’20.

10yr – same pattern as in the 30-year bond – the 10-year note is not that bullish. Basis the future support is at 131’17 to 131’04 and resistance at 132 and then 132’11

TLT – support at 116.70 to 116.35, and then 115.50 to 115.38 Resistance at 117.15 to 117.25 and then 117.85

TBT – support at 66.85, and 66.60 Resistance at 68, 68.50 and then 69.20.