March 8, 2013

Logical Market Update: Bulls March – ECB Breathes Life Into Euro – Unemployment Reports Will Control Trade on Friday

The Bulls March On – The ECB Breathes Life Into the Euro – Unemployment Reports Will Control Trade on Friday

The markets continued higher on Thursday as the bond market slid lower. It would seem that bond market is beginning to disbelieve the FED’s ability to hold rates lower much longer. The long end of the curve is beginning to look bleak and that is spilling over into the short end of the curve as well. Consider though that as money is pulled out of bonds it is being put into the equity markets. It may not be the smartest move but money managers can’t allow it to sit idle or at current money market rates. So until rates actually do head higher I suspect the rotation will continue.

All eyes will be on Friday’s unemployment numbers as this report takes center stage. A favorable report will drive the indexes higher and likely add (at least initially) some acceleration. An unfavorable report should produce the correction I discussed yesterday. Again, if the report is received poorly the selling may get heavy as profit taking is expedited.

Under either scenario I believe there will be solid two-way trade and numerous opportunities in equities, treasuries, and the forex market. As I have stated previously:

The markets continue to provide numerous trading opportunities to short term traders. Since no market continues to go up or down forever what becomes of importance is adopting a trading system that accurately identifies the shifts in trends. DTS offers three (scalper, swing, and trend) systems which when coupled with their Trade Manager offer a complete and unique system to trade with.

Observations from this Thursday’s trade:

The Russell 2000 joined the DJIA and S&P 500 in reaching new all time highs on Thursday. It to four days to relieve the over bought readings at the end of February, and eight days to reach over bought again (daily chart). This supports a correction taking place before substantial gains are seen, but as seen recently a market can remain over bought for an extended period of time. The pattern in progress off of the February low at 888 does not necessarily suggest a reversal of fortune at this point. In fact as I have discussed a smaller (albeit quick and sharp) correction is more likely before additional new highs are seen and setting the stage for a more sustained and deep correction.

As for trading opportunities, the important factor remains to follow the trend and not your emotions. Trading opportunities should remain plentiful. Equities, treasuries, and the US $/Euro remain very active.

Here is an updated list of the markets that DTS (all three birds) are producing numerous signals and have been very profitable:

• US$/Euro
• GS (Goldman Sachs)
• AAPL (Apple Computer)
• GOOG (Google)
• LNKD (LinkedIn)
• NFLX (Netflix)
• E-mini S&P 500
• TLT (Treasury Bond Long ETF)
• TBT (Treasury Bond Short ETF)

Expectations for Friday (3/8/2013)

I continue to suspect some weakness will come as the markets shift into smaller corrections, but the could happen during the overnight sessions and will depend on the markets interpretation and reaction to Friday’s unemployment numbers.

DJIA (basis the March Dow future): traded lower afterhours reaching support at 14250 quickly. If the correction I am looking for is on the smaller scale support at 14250 to 14225 should hole. A break below 14220 would suggest a drop towards 14135. Resistance continues at 14350 to 14400.

SPX (basis March future): the S&P 500 also is trading lower afterhours reaching 1535.25 early in the session. The break below 1537 support does clear the path for an additional drop towards 1525. A clean break above 1545 should clear the path for a sustained move to the 1555 to 1558 area before a more sustained correction would be expected.

Russell 2000 (basis the future): should find some initial support at the 930 area and is trading there afterhours. A break below 925 though, would drop support to the 915 area. Resistance remains at 940.

Treasuries:

The treasury markets began to slide lower during European trading after the ECB statement brought the buyers back to the Euro and relieved market fears of rates moving higher due to the situation in Italy. Support at 142’20 to 142’15 was sliced through quickly leaving 141’25 up next. A break there drops support to 140’25 to 140’16 and it shouldn’t be considered strong. Resistance is now lowered to 142’15 to 142’20 and then143’12 to 143’20

10yr –note (basis the future) has support at130’25 to130’025 and the lower end of the zone is the more likely area to contain additional selling. Resistance at 131’15 to 131’22 and then 132’11.

TLT – support at 116.90 to 117 failed overnight as did 116.70 to 116.35. The pattern in progress appears to need additional downside, but there may be a small breather before resuming. Support now drops to the 114 area. Resistance begins at 116.35 to 116.70 and then 116.90 to 117.

TBT – support at 66.50 to 66.35. Resistance may be light at the 68 area, and quickly zips up to the 69 area once broken.

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