Removing the Human Factor is Not Total – Part I Chart $GC

I start with an apology for missing very consistently my own objective to post on a more frequent basis.  Amazing how easy it becomes when “I” get in the way of achieving “my” objectives.  In my own defense, I have been working diligently on the MJF1 Partners’ auto trader.  I’m excited to bring it to the LogicalSignals Trade Room where I’m already testing it in real time.  The results are exciting.

NormalVariableRandomI have often stated, “If you can’t beat ’em, join ’em.”  In doing so I’ve had to quiet more times than not the “trader” in me.  Why?  Because the trader has emotions and emotions can interrupt the decision processes, by hesitating.  Computers, on the other hand, don’t hesitate.  They have their marching orders and execute them.  As “traders” we need to understand that there are a myriad of algorithms in operation firing off orders at all times conceivably in all traded markets.  Add to that the myriad of strategies that are at play via the myriad of algorithms in operation firing off orders at all times conceivably in all traded markets.  Get the picture?  To be successful in trading  you really can’t care about the “who, what, where, when or why.”  Remember it’s only a number.  And many relevant numbers are being processed simultaneously and disseminated to massive amounts of servers across the globe operating algorithms written by MIT graduates.  The amount of $’s flying around the world in need of a temporary resting place is substantial.  And at the moment, the sheer volumes bring opportunities some will say come every 4 years as the battle for political control in the U.S. continues in a perpetual state of transition.  Having the right mindset has become critical to succeeding. Getting caught up in all the hubris taking place within the current election cycle is important to pay attention to, but don’t fall into that abyss.

binaryeventI don’t have an opinion of the markets that I choose to trade.  For the most part,  I’ve stopped thinking about the necessity to understand what fair value for the underlying should or shouldn’t be.  I think of “cents” instead of the “dollars” and the probability and random variable theory as measured by volatility.

As I’ve previously discussed, anticipating versus participating becomes heavily favored towards participating.   Opportunities are abundant across a wide variety of tradeable markets and are likely to remain in their various forms of “transition” through the balance of 2016.  It isn’t easy to just step into a market that you haven’t traded before based purely on computer generated signals.  But when trading in tune with the volatile price swings, the rewards are extremely encouraging.  While there are “traders” in all of us the concept of “removing the human factor” can’t be total.  The input will always be traceable back to a human being. Therefore, I’ve had to embrace the 21st century and abandon the reality of the trading floor and accept the realities of a virtual trading floor, which is, for the most part anonymous.

I am resolved in accepting the direction that my trading has taken  by shifting from primarily trading options to primarily trading futures.  Since I’ve kept close tabs on the “economic pecking order” and with, interest rates sitting at the top from which everything else flows into and out of,  I’ve been able to get comfortable trading futures.   Currently in “pecking order” this includes futures on bonds, US$/EUR, (6E), precious metals, and stock indices.  I’m looking to re-engage trading within the forex markets as well.

The discussion will continue —

gold$Gold has come back into play over the past week or so as global markets move in tandem with the US $ against the Euro and the Yen. With volatility getting kicked up several notches the opportunities for “runners” of 20 to 50 ticks is occurring with more regularity.  I would anticipate that this will remain the case as the US Dollar is pulled into the global transitions happening within China, Japan, and the European Union.

Check out the chart for today’s trades and discussion.

2016-05-04_14-33-34_Gold

Markets in Transition – Crude Oil

As I began my last post I continue to understand the trading mantra, “I don’t care.”  I do care as to whether the shift in trend is towards buying or selling, but I don’t care about the why or what or where.  This, for the most part, allows me to concentrate on the momentum. The strength of the momentum determines the trend, whether that be on an hourly basis or a tick basis.  When you consider momentum on an hourly or daily basis it becomes more attached to a “binary event.”

Binary Events come in various sizes with regard to “strength” and “intensity”.  Tsunami’s are predicted according to the strength and intensity of an earthquake.  The stronger the quake the greater probability for a larger,  more intense tsunami in the form of a massive wall of water carrying literally tons of momentum.  As it rolls over land it obliterates everything in its path.  Weekly reports on crude can and often do provide many opportunities to trade once the violent knee jerk motion subsides and I would not consider some of them to be major in strength or intensity.  However, the further the “quake” goes up the chain towards reaching – foreign currency reserves – namely the U.S. dollar the resulting tsunami will roll across many commodities and sectors.

binaryeventHere’s the caveat, the canary in the coal mine, the domino that kicks off the race to the exits in all it’s forms, being either from the long side or short side.  China is expected to report that its total FX reserves declined $3.2125 trillion from $3.3 trillion.  A drop of approximately $118 billion.  Which the world needs to see in order to keep the “status quo” or a continuance of the quietly higher massive December 2015 outflow of $108 billion.

So, a reported number that would be below $118 billion or substantially below for January 2016 outflows would kickstart in mass  a short squeeze across the board in most commodity and materials linked sectors.

Here’s what BofA strategist Claudio Piron is expecting – a far smaller outflow.

“We forecast China FX reserve changes and estimate a USD37.5bn fall in January – (USD29.1bn decline adjusting for a negative FX valuation effect). Note that the standard error of the forecast is large at USD24.5bn, which would give us a downside of USD84.5bn fall. We caution that this is guidance and we attempt to be as transparent as possible so investors can gauge the odds in what is a key release for the markets. Note too this is based on onshore CNY FX volumes and our estimate maybe biased down as there are no real time volumes for offshore CNH.”

 

Futures Traders Should Participate Not Anticipate– the current volatility should remain high in that the markets may be bracing or be subject to a larger “trend change” from short to long – ala a massive short squeeze.  Should that be the case – do your best not to trade with emotions and let your signal generator do its work.  A larger “player” short squeeze should switch the “runners” to the upside.  Protect yourself against the urge to succumb to “counter trend” trading.  You don’t want to be missing out on all the fun so participate instead of attempting to anticipate the next turn in the other direction.  Which, by the way, is likely to be much shallower than you think because those needing to cover shorts will create an avalanche of demand as the various derivative traders get involved.  It will be best to keep focused on the trading mantra –  “I don’t care” about the “who, what, when, or wheres.”

Check out the chart below for a snippet of Friday’s trade in Crude – “CL”  I trade using a tick chart and with prices moving all over the map to squeeze together the day would be to miss the trees in favor of the forest.  The chart included is the time I traded, which is 6 to 8 AM PST.  The balance of Friday’s session reflected a quickly changing market as it appeared several larger traders were “somewhat” squaring positions or just plain out taking sides.

2016-02-06_17-22-53_CRUDE

The gross ticks from the indicator “signal to signal” performance was +123 ticks.  Net numbers depend on your commission rate and “slippage.”  Deducting 25 ticks as “cost” would put the net ticks at +98 ticks or $980 per contract trading the front month – in two hours.

Sunday brings the perfect front for US retail traders – The 50th Super Bowl.  China will report their FX reserve numbers during the game — Globex opens at 6 PM EST – 3 PM PST – Do you know where your position is?

 

 

 

 

 

Logical Market Update: The Bull’s Got Nerves of Steel & —

The Bull’s Got Nerves of Steel & – Yeah Right! Whatever! Good Luck With That!

The bull’s got a brass pair!  Wednesday’s market action did not satisfy any criteria as a correction at least from my perspective.  The bulls continue to throw more and more cash around appearing to be trying to suck in any last “on the fence” buyers.  Or could they be demanding a complete capitulation by the shorts using this tactic as if it were a part of the surrender agreement.  The fat lady may be warming up, but thus far the fatter players don’t have all the right positions in place just yet.  Off-loading massive amounts of risk takes a toll on a trader — yeah right!

However, in my view there appears to be a much larger pool of market players that believes the higher risk is for prices to stay at current or higher levels – in the equities markets that is at all time highs for the DJIA, S&P, and Russell indexes and recovery highs for the NASDAQ.  Even though Mr. Bernanke and the FED continue to appear relaxed and in control and at this moment – the 10 year note and 30 year bond traders are no longer buying the hype or news.  It appears more as if they are attempting to get the “jump” on the FED.   The inevitable bursting of the weakening credit bubble seems to have been moved forward somewhat.   And do not write off the controller of the printing press.  There could still be a last gasp effort made by the Treasury to prop up the markets into next year.  The graph below tells the story of who is long and who has more at stake if the belief in the faith and good credit of the United States takes a tumble or stumble – whatever.

I would find it hard to accept yesterday’s meager decline and today’s shallow attempt as the correction previously discussed.  That doesn’t preclude the powers that be pushing the broader indexes deeper into record highs and overbought.  Some consolidation is necessary and the higher things go puts the odds for a higher velocity of the drop lower.  If you have even been on an aircraft that suddenly drops into an air product,  you get the picture.   If the FED closes down the buy side, I don’t see the TBTF players putting up any of their money to continue the play.  Which leaves the FED in a bind to turn seller without drawing too much attention – good luck with that!

 

FedHOldings

 

Thursday’s Outlook

Wednesday’s earnings have left a pall of buying in the air as the After-hours sessions get going.  FB and BIDU both climbed to the topside of their respective ranges.  Which in turn has likely created some short covering in other issues.  I don’t want to appear complacent but I get bored quickly when the S&P 500 creates the day’s trading range within the first 10 minutes of trading.  This type of action though is likely to carry through the balance of earnings season at least until all the index titans have reported.  Downside projections remain valid as previously discussed and should be updated if and when any of the indexes moves to a new high. 

Treasuries, dropped into the next leg down.  Both the 10-year note and the 30 year bond were held at resistance and have now given up sufficient ground to lean near term down.  While there may be several additional days of hard selling, initially support could soften the blow and provide moments to catch your breath.  At this point I’m not looking for the larger decline to kick in just yet.  The 10-year note September future should find some stronger support at the 125’25 area before another rebound rally takes over.  The equivalent level basis the 30-year bond September future is the 131’16 area. 

Gold and silver continued to unfold in the expected pull back.  The chart below of the gold August future has possible Fibonacci support zones.  The 1308 to 1303 area could contain initial weakness before a bounce.  Ultimately though I would expect the 1283 to 1263 area to be visited before a more pronounced bounce kicks in.  In silver the pattern is not as positive, but the equivalent levels are 19.80 and then 19.60 to 19.40.  In silver there is a greater risk of upside failure producing a stronger sell off than in the balance of the precious metals complex, so the support zones given may prove to be small resting spots on the way to below 19.   

GOLD_Hourly_Fibonacci_2013-07-24-TOS_CHARTS

 

Indicator Warehouse 

Indicator Warehouse has in my opinion the best platforms available covering a wide range of traders from novice to expert.  The Diversified Trading System from Indicator Warehouse offers cost effective products that allow 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. 

My point on money rotation and sector rotation is similar to that on parabolic moves that they happen with frequency within many time frames.  As traders these types of moves can be a bonus for day trading or position trading so again don’t get caught up in the “what’s the catch.”    Realizing a rotation is occurring within a stock you trade or a sector is a great source of stocks to plug into the Diversified Trading System.  Allowing DTS to cleanly and beautifully capture the moves though any or all three DTS trading platforms.  Our goal remains to assist traders to make greater profits during all types of markets.  Sector and money rotation is another tool.

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).    In the near future I will be adding options strategies to the trading list. 

Here is an updated list of the markets where I have found that DTS (all three birds) are producing numerous signals.  Continue to bear in mind that there are days when trading opportunities are not as plentiful.  These are days when not trading is likely more profitable than attempting to “force” a trade”:

 

  • 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) – highly recommended
  • GOOG (Google) – highly recommended
  • LNKD (LinkedIn) – solid intraday range
  • NFLX (Netflix) – solid intraday range
  • TSLA (Tesla Motors) – highly recommended 
  • 30-yr Treasury Bond future – highly recommended
  • 10-yr Treasury Note future – solid two way trade
  • TLT (Treasury Bond Long ETF) – very active
  • TBT (Treasury Bond Short ETF) – very active (moves inversely to TLT)
  • Gold (futures and ETF – GLD) very active – not suitable for all traders
  • Silver (futures and ETF – SLV) – very active – not suitable for all traders

Logical Market Update: Near Term Outlook for Treasuries

trading bonds, treasuries

Near Term Outlook for Treasuries – 10 Year Note Continues to Lead Direction

 

Let’s talk about bonds baby…. let’s talk about you and yield…let’s talk about bonds…” – sound like a familiar tune – it should.

 

The rally in treasuries has stalled – paused for thought – needs an additional “goose” only received after hearing additional encouragement from Mr. Bernanke.  The near term picture for the 10-yr note and the 30-yr bond are below – both have been holding well below initial resistance.  Equities cruised to additional new highs on Monday on low unimpressive volumes and volatility.  Tuesday brought the long awaited start of the next correction (another 4th wave within the sub-divided sequence I discussed last week.)  The good news for bulls is that there is still additional upside to come, so I’m not looking for a major drop just yet.  Having said that likely for the next couple of days upside moves will provide good opportunities for day traders both on the long and short side.  Friday is July expiration for options and I would expect additional volatility as the “forces” battle to pin prices around higher strike prices.  Any disappointing earnings surprises could put a dent in upside efforts depending on the company.

 

The market is again waiting on the next statement from Bernanke, which is due out Wednesday morning.  So expect the credit or the blame for market movement to be awarded to Mr. Bernanke’s.  Also, today’s Senate confirmation of the director of the Consumer Financial Protection Bureau, Richard Cordray was a definitive defeat of the financial lobby backed by the who’s who of Wall Street.  How this plays out may throw a curve ball to this sector, particularly if the Volker Rule or any new form of the Glass Stengel Act passes through congress.

 

The opportunities for day trading should continue.   Don’t forget about position sizing.  The use of this remains critical in maintaining a positive P/L.

 

 

 

TREASURIES

 

10 Year Note (click chart to enlarge)

 

The chart below includes Fibonacci support zones below current levels and Fibonacci resistance zones above current levels.  I’ve drawn the zones from the 2004 low and the 2008 low.  The current pattern in progress has equal odds of correcting either of the advances that began off of the lows.

 

Although the FED has held their statements to “not rocking the boat” by cutting back on easing via repurchase policies there remains the inevitable – “unless” inflation starts to rear its ugly head or if unemployment falls below their trigger level.

Ten-Year Note Future (Monthly)

 

 

 

The current pattern in progress will very likely contain another down leg with the support zone at 123’30 to 123’10 being tested.  A solid break below this zone brings the next level at 121’12 to 119’26 into play.  If the FED keeps current policy in place without any of their policy changing points being triggered either of these zones would be the likely candidate for a turning point in the 10-year note.

 

10-Year Note Future (Weekly)

 

 

 

The weekly chart shows that resistance at 126’16 has held thus far.  Expectations though continue to favor the rebound rally moving to next resistance at 127’23 before the next down leg takes over.  Overall though, a more destructive decline reaching beyond support at 121’12 to 119’26 cannot be ruled out.  More apparent though is that the interest rate/debt bubble has begun to burst/deflate whether or not the FED manages to hold rates down for the foreseeable future.

 

30-Year Bond (click chart to enlarge)

 

The chart below (monthly) reveals the next support zone to watch is 129 to 127’24.  The 30-year bond has already touched the 132’10 area, which is where the current rebound rally, began.  Thus far resistance at the 136 level has contained the move, but ultimately (in a perfect world) a test of resistance at 136’28 should not be ruled out.

 

 

 

 

Thirty Year Bond Future (Weekly)

 

 

 

 

I don’t apologize for sounding like a broken record because of the importance of accepting that the status quo is changing please don’t be fooled in to complacency.  Now is the time to keep alert as the trading opportunities will be numerous and present themselves in both directions.

 

But it remains a time when things can seem to change quickly coming as “surprises” to the markets when in fact the recovery advance has been in the “making” for over ten years.

 

It is a time when understanding the underlying reasons for the advances – the huge influx of money into the system by the global Central Banks – will eventually come full circle via the credit/debt – interest rate bubble bursting with such force that the equity markets will not be able to lean on the Central Banks good faith and credit to fix the problems.  It is a matter of when not if.

 

While some position trading will be highly profitable – I am continuing to find ample opportunities in day trading.  Depending on your objectives a combination of day and position trading could prove very rewarding as the current patterns unfold.

 

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.

 

My point on money rotation and sector rotation is similar to that on parabolic moves that they happen with frequency within many time frames.  As traders these types of moves can be a bonus for day trading or position trading so again don’t get caught up in the “what’s the catch.”    Realizing a rotation is occurring within a stock you trade or a sector is a great source of stocks to plug into the Diversified Trading System.  Allowing DTS to cleanly and beautifully capture the moves though any or all three DTS trading platforms.  Our goal remains to assist traders to make greater profits during all types of markets.  Sector and money rotation is another tool.

 

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) – highly recommended
  • GOOG (Google) – highly recommended
  • LNKD (LinkedIn) – solid intraday range
  • NFLX (Netflix) – solid intraday range
  • TSLA (Tesla Motors) – highly recommended  
  • 30-yr Treasury Bond future – highly recommended
  • 10-yr Treasury Note future – solid two way trade
  • TLT (Treasury Bond Long ETF) – very active
  • TBT (Treasury Bond Short ETF) – very active (moves inversely to TLT)
  • Gold (futures and ETF – GLD) very active – not suitable for all traders
  • Silver (futures and ETF – SLV) – very active – not suitable for all traders

 

Let’s talk about bonds baby…. let’s talk about you and yield…let’s talk about bonds…” – sound like a familiar tune – it should.

The rally in treasuries has stalled – paused for thought – needs an additional “goose” only received after hearing additional encouragement from Mr. Bernanke.  The near term picture for the 10-yr note and the 30-yr bond are below – both have been holding well below initial resistance.  Equities cruised to additional new highs on Monday on low unimpressive volumes and volatility.  Tuesday brought the long awaited start of the next correction (another 4th wave within the sub-divided sequence I discussed last week.)  The good news for bulls is that there is still additional upside to come, so I’m not looking for a major drop just yet.  Having said that likely for the next couple of days upside moves will provide good opportunities for day traders both on the long and short side.  Friday is July expiration for options and I would expect additional volatility as the “forces” battle to pin prices around higher strike prices.  Any disappointing earnings surprises could put a dent in upside efforts depending on the company. 

 

The market is again waiting on the next statement from Bernanke, which is due out Wednesday morning.  So expect the credit or the blame for market movement to be awarded to Mr. Bernanke’s.  Also, today’s Senate confirmation of the director of the Consumer Financial Protection Bureau, Richard Cordray was a definitive defeat of the financial lobby backed by the who’s who of Wall Street.  How this plays out may throw a curve ball to this sector, particularly if the Volker Rule or any new form of the Glass Stengel Act passes through congress. 

 

The opportunities for day trading should continue.   Don’t forget about position sizing.  The use of this remains critical in maintaining a positive P/L.    

TREASURIES

10 Year Note (click chart to enlarge)

The chart below includes Fibonacci support zones below current levels and Fibonacci resistance zones above current levels.  I’ve drawn the zones from the 2004 low and the 2008 low.  The current pattern in progress has equal odds of correcting either of the advances that began off of the lows. 

 

Although the FED has held their statements to “not rocking the boat” by cutting back on easing via repurchase policies there remains the inevitable – “unless” inflation starts to rear its ugly head or if unemployment falls below their trigger level. 

Ten-Year Note Future (Monthly)

TEN_YEAR_NOTE_MONTHLY_FIBO_2013-07-16-TOS_CHARTS

 

The current pattern in progress will very likely contain another down leg with the support zone at 123’30 to 123’10 being tested.  A solid break below this zone brings the next level at 121’12 to 119’26 into play.  If the FED keeps current policy in place without any of their policy changing points being triggered either of these zones would be the likely candidate for a turning point in the 10-year note. 

 

10-Year Note Future (Weekly)

TEN_YEAR_FIBO_MONTHLY_2013-07-16-TOS_CHARTS

 

 

The weekly chart shows that resistance at 126’16 has held thus far.  Expectations though continue to favor the rebound rally moving to next resistance at 127’23 before the next down leg takes over.  Overall though, a more destructive decline reaching beyond support at 121’12 to 119’26 cannot be ruled out.  More apparent though is that the interest rate/debt bubble has begun to burst/deflate whether or not the FED manages to hold rates down for the foreseeable future. 

 

30-Year Bond (click chart to enlarge)

The chart below (monthly) reveals the next support zone to watch is 129 to 127’24.  The 30-year bond has already touched the 132’10 area, which is where the current rebound rally, began.  Thus far resistance at the 136 level has contained the move, but ultimately (in a perfect world) a test of resistance at 136’28 should not be ruled out. 

30_YEAR_MONTHLY_FIBO_2013-07-16-TOS_CHARTS

 

Thirty Year Bond Future (Weekly)

30_YEAR_WEEKLY_FIBO_2013-07-16-TOS_CHARTS

 

I apologize for sounding like a broken record because of the importance of accepting that the status quo is changing please don’t be fooled in to complacency.  Now is the time to keep alert as the trading opportunities will be numerous and present themselves in both directions. 

 

But it remains a time when things can seem to change quickly coming as “surprises” to the markets when in fact the recovery advance has been in the “making” for over ten years.

 

It is a time when understanding the underlying reasons for the advances – the huge influx of money into the system by the global Central Banks – will eventually come full circle via the credit/debt – interest rate bubble bursting with such force that the equity markets will not be able to lean on the Central Banks good faith and credit to fix the problems.  It is a matter of when not if

 

While some position trading will be highly profitable – I am continuing to find ample opportunities in day trading.  Depending on your objectives a combination of day and position trading could prove very rewarding as the current patterns unfold.

 

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. 

 

My point on money rotation and sector rotation is similar to that on parabolic moves that they happen with frequency within many time frames.  As traders these types of moves can be a bonus for day trading or position trading so again don’t get caught up in the “what’s the catch.”    Realizing a rotation is occurring within a stock you trade or a sector is a great source of stocks to plug into the Diversified Trading System.  Allowing DTS to cleanly and beautifully capture the moves though any or all three DTS trading platforms.  Our goal remains to assist traders to make greater profits during all types of markets.  Sector and money rotation is another tool.

 

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) – highly recommended
  • GOOG (Google) – highly recommended
  • LNKD (LinkedIn) – solid intraday range
  • NFLX (Netflix) – solid intraday range
  • TSLA (Tesla Motors) – highly recommended  
  • 30-yr Treasury Bond future – highly recommended
  • 10-yr Treasury Note future – solid two way trade
  • TLT (Treasury Bond Long ETF) – very active
  • TBT (Treasury Bond Short ETF) – very active (moves inversely to TLT)
  • Gold (futures and ETF – GLD) very active – not suitable for all traders
  • Silver (futures and ETF – SLV) – very active – not suitable for all traders

Logical Market Update: Anybody Else Noticing? Hype is on the Rise!

Is Anybody Else Noticing?  Hype is on the Rise!  – The Russell 2000 Makes New Highs – DJIA, S&P 500 Should Follow – Treasuries In A “Dead Cat Bounce”

I’m in a quandary as how to describe trading last Wednesday, Friday and also today.   The broader index futures have now closed a second day “very rich” – (premium over cash) and while the pot odds were highly against this happening the fact is – it did.   Something is spooking the shorts and forcing the futures to get “pumped” higher after the cash closes.

 

With the initial reaction to Alcoa’s Q2 earnings being positive it appears the markets are preparing for a successful Q2 earnings season.  The fact that they are doing it into all time highs and against the spike higher in interest rates can only be akin to a spoiled child performing the “I dare you” challenge with a parent.  The parent never really displays any threatening change until BAM – the hand that rocks the cradle comes swooping down.

 

The equity markets are challenging the FED to make good on Bernanke’s threats of reigning in “cheap money.”  The treasury markets on the other hand have been posturing towards its inevitable and undeniable arrival.

 

No doubt, the financial lobby is working overtime up, down and all around the DC Belt Way giving pep talks on the improving economy in an attempt to force rates back into submission.  Hoping in silence that the interest rate/ U.S. Dollar bubble was sufficiently deflated to withstand another blast of “hot air”.

 

The longer-term charts are signaling new highs for the broader indexes before another correction kicks in.   The Russell 2000 pushed into that territory today and is seeing what is I loving call – the “TBTF long-term hooking” of the growing number of “yield seekers” aka retiring Baby Boomers.  To continue the rally, the TBTF analysts must

 

  • Be convincing in their recommendation to buy on the improving economy,
  • Prevent Interest Rates from continuing to spike higher,
  • In fact they need to spike back down to “jump start” the next avalanche of buy orders.
  • Complacency levels must be restored as measured by implied volatility.  The result would be the VIX moving back (well) below 15.
  • Any notice of a change in the Status Quo must be squelched.
  • Keep an eye on the Employment Numbers –
    • If the rate declines moderately to strongly within the states of New Jersey, Michigan, Illinois, North Carolina, Georgia, Kentucky, Tennessee. Mississippi, or Nevada it could pull the national level closer to Bernanke’s trigger point.
    • If California, Florida, Pennsylvania, and New York continue to improve same scenario.
    • Full employment is (I’m sorry to say) not desirable since it usually ushers in higher inflation with it.  Therefore it is important for the TBTF and others to keep the risk “off” of higher interest rates – to keep alive the “carry trade.”
    • Lastly, take a look at the chart below (from www.zerohedge.com) and check out who would have motive to keep the rally going via holding interest rates lower!

FedHOldings

 

 

DJIA (click on the charts to enlarge)

 

Elliott Wave Update –

The monthly chart (below) continues to make clear the strong potential for several additional new highs are still to come.  The March 2009 low marked the completion of Supercycle Wave IV (or Grand Supercycle Wave IV) – more important is to understand that the ensuing advance will ultimately form five waves of Cycle degree to complete Supercycle Wave V which in turn completes a huge bull market covering more over a century of growth.

Previously I have discussed that within these larger moves (waves) the pattern will sub-divide and often within a third wave advance (or decline), the pattern will sub-divide several times.  The ultimate outcome of this type of pattern is a stair step type action in the direction of the larger trend.  In this case – up.  Wave III has thus far sub-divided four times.  The chart is labeled reflecting this.  The result with is a series of new high followed by correction and a new high again (three times) as the pattern completes.

Conservatively, the market has strong potential to break above 16,000 and could go as high as 17490 before wave III is complete.

 

Monthly

DJIA_ElliottCount_Monthly_2013-07-08-TOS_CHARTS

 

Weekly

DJIA_Weekly_ElliottCount_2013-07-08-TOS_CHARTS

The technical picture while getting near term overbought does support a push to new highs before even a smaller pull back occurs.  The stochastic oscillator is overbought on a monthly basis with the weekly chart clearly pointing higher from just below overbought.

Implied volatility should fall as the rally continues – so do expect pockets of increased price volatility and the velocity of the move(s) to increase.

Sector rotation is again in force with it appearing to continue to hit the mining stocks.  The rotation into technology stocks could get a volatility boost from Q2 earnings and guidance causing slips, slides, and avalanches in both directions.

Tuesday and Wednesday’s blog will cover the S&P 500, Russell 2000, NASDAQ 100, the 30-yr Bond, 10-yr Note, and Precious Metals.

While some position trading will be highly profitable – I am continuing to find ample opportunities in day trading.  Depending on your objectives a combination of day and position trading could prove very rewarding as the current patterns unfold.

 

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.

 

My point on money rotation and sector rotation is similar to that on parabolic moves that they happen with frequency within many time frames.  As traders these types of moves can be a bonus for day trading or position trading so again don’t get caught up in the “what’s the catch.”    Realizing a rotation is occurring within a stock you trade or a sector is a great source of stocks to plug into the Diversified Trading System.  Allowing DTS to cleanly and beautifully capture the moves though any or all three DTS trading platforms.  Our goal remains to assist traders to make greater profits during all types of markets.  Sector and money rotation is another tool.

 

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) – highly recommended
  • GOOG (Google) – highly recommended
  • LNKD (LinkedIn) – solid intraday range
  • NFLX (Netflix) – solid intraday range
  • TSLA (Tesla Motors) – highly recommended  
  • 30-yr Treasury Bond future – highly recommended
  • 10-yr Treasury Note future – solid two way trade
  • TLT (Treasury Bond Long ETF) – very active
  • TBT (Treasury Bond Short ETF) – very active (moves inversely to TLT)
  • Gold (futures and ETF – GLD) very active – not suitable for all traders
  • Silver (futures and ETF – SLV) – very active – not suitable for all traders

Logical Market Update: Interest Rate War Underway Since 2009 – Cost is Trillions of $’s

Don’t be Fooled – An Interest Rate War has been underway since 2009 – Cost is $Trillions – Is the Tail Wagging the Dog?  Who is in Control Here?

 

In a nutshell – The downward correction in treasury prices and its inverse the rise in yields (interest Rate) is far from over.  It is not time to establish long positions in Treasuries.  Unless you are a day trader stay out of bonds, it is much more likely that the buyers are short covering (a closing trade) – not establishing new long positions (an opening trade).  I promise you, those same buyers will sell it back out to you when you believe the selling has subsided and buyers are returning.  Let’s face it buying a high priced bond with historically low yields is a guaranteed loosing trade. 

 

Many have been fed and still believe in the Conventional Wisdom theory.  The status quo depends upon it.  Keeping the belief going through a generalized attitude that no matter what history will prevail and everything returns to it’s own norm – right? 

 

No, wrong – the Status Quo continues to change with or without your consent.  In fact when push comes to shove it is socioeconomic cycles that matter most.  They are at the core of any long-term swing in the global economies.  As that core strengthens the momentum to move it in the other direction takes longer to build and actual change in direction is often overlooked or disregarded.  Jumping in front of it too soon can be hazardous to one’s financial health, but the greater risk remains to those who hold on too long.   

 

At the risk of being repetitive, the Status Quo is changing – it is not asking for your permission to change direction and denial, fear, or doubt will not divert nor prevent it from happening.

 

The question is not one of “when not if” anymore.    The global Central Banks won’t be able to maintain the deception or control of it through liquidity.  When any entity whether corporate or municipal believes that it has all the chips of control it should be ringing a bell that a trend change is going to happen.  The Central Banks cannot realistically believe that they can defy gravity! 

 

The evidence is overwhelming one-sided at this stage:

  • There are far to many longs in the vast treasury markets. 
  • It took a long time to do it but the powers that be have successfully transferred much of their interest rate risk to the masses of “long-term” investors through every avenue imaginable. 
  • The Central Banks of the world’s developed economies have been painted into inescapable corners over in most cases the last 30+ years.  All the while an unsuspecting public continues to buy and hold for the long-term via their pension funds, 401(k)s, mutual funds, and investments.  Investments that have a much greater probability of failure are not likely to be paid back.    

 

Body of Evidence (Long Term Charts)

(All Charts Courtesy of www.thechartstore.com and are © 2013 by Ron Griess)

 

I always begin with the big picture to ground myself firmly with what has come before.  Attempt to get an understanding of  “time” and what economically took place during price peaks and troughs and then attempt to access what the potential possibilities and probabilities are going forward.  A major point to make clear is the time frame the long-term is covering 60 years or more, so if it didn’t take 2 months to get here it certainly won’t clear itself up in that amount of time. 

 

The misconception as I see it is that the majority still believes that over time the path of least resistance is higher – and in some cases that would be true.  However, look at the yields below – they are at historical or near historical lows.  So, the majority is partially correct in that the path of least resistance is higher – but in this case it will be higher interest rates (bond yields). 

 

Federal Funds Monthly Average Yields (1954 – 2013)

FedFundsAvgRates_2013

 

 

 

U.S Treasury Monthly Average Yields (1920 – 2013)

 USTreasAvgYield_2013

 

 

 

U.S. Treasury Monthly Average Yields 10 Year Constant Maturity (1942 – 2013)

 

10YearYields_2013

 

 

 

 

 

U.S. Treasury Monthly Average Yields Long-term Constant Maturity (1919 – 2013)

 LongTermMaturity_2013

 

 

Inflation Adjusted Figures drive the point home on how crazy it all can get.  When the biggest players (JPM, BAC, WFC, GS, C, and a host of others) openly and without conscience borrow Federal Funds at under one percent and then sell them back to the FED at 3.6% to 3.80% and then throw a temper tantrum when interest rates move fractionally higher throws off earnings estimates.  What’s a few billion between friends?  Check out the charts below that are adjusted for inflation.  The plot thickens.

 

Real Monthly Average Federal Funds Rate (Inflation Adjusted) (1954 – 2013)

 InflationAdjFedFunds_2013

 

 

Real U.S. Treasury Monthly Average Yields – 10 Year Constant Maturity (1941-2013) If there is one chart that stands out as the bell weather indicator for inflation and interest rate direction it is the 10-Year Note

10YrInflationAdjusted_2013

Concluding Thoughts

 

Without going into a more detailed look at the corrections that began in July 2012 the Treasury markets have moved into extreme oversold conditions.  Setting up what should be a temporary reprieve from the selling and a bounce higher for prices.  Ultimately though, the likelihood of rates spiking toward 5.5 to 6 % is better than 50/50.  Longer-term there remains the potential for a last gasp effort by the FED to drive rates back down which hopefully will be received by bond holders as a gift to get out of long positions. 

Price volatility has increased dramatically in the 30-year bond and the 10- year note.  Both have futures, options, and ETFs available to trade.  Volumes in the ETFs have expanded as well as in the futures making day trading the choice to participate.  Before entering any trade though, please be sure to understand the risk, the tick size and liquidity. 

 

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. 

 

My point on money rotation and sector rotation is similar to that on parabolic moves that they happen with frequency within many time frames.  As traders these types of moves can be a bonus for day trading or position trading so again don’t get caught up in the “what’s the catch.”    Realizing a rotation is occurring within a stock you trade or a sector is a great source of stocks to plug into the Diversified Trading System.  Allowing DTS to cleanly and beautifully capture the moves though any or all three DTS trading platforms.  Our goal remains to assist traders to make greater profits during all types of markets.  Sector and money rotation is another tool.

 

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)