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 – Economies Too?

financial money economyI fully understand today’s trading mantra of ” I don’t care!”  It makes total sense if you are just trading the number according to what your signal generator is telling you.  However, it can become a nagging problem when the trader in you surfaces and begins to haunt the thought process by questioning the “Who, What, When, and Why family.”  In case, you don’t recall them they usually show up along with their cousins, the twins “Doubt and Fear.”  They often invite themselves in for a “quick” cup of coffee and stay for the day and eat you out of your emotional house and home.  There are many days when being a “gnat on the elephant’s ass” is more difficult than imagined.

2030capitalaztionchartglobalWhen markets are in transition it produces incredible opportunity at the speed of light as thousands of orders race across networks pushing prices in all directions often simultaneously.  Check out the 2030 forecasted capitalization of global equity markets.  The nominal value in US dollars is 284.2 trillion.  According to the Federal Reserve, as of 2015, there are $1.39 trillion in circulation, of which $1.34 trillion are in Federal Reserve Notes.  Doesn’t take a rocket scientist to do the math. I’m not sure how much longer the system can rob Peter to pay Paul when they are both within the top 1/10th of 1%.  With the US and China dominating the world economic stage at the moment it is not a surprise that any international hiccups coming from either country carry the potential to create a global tsunami with an urgency to exchange capital.

When the U.S. dollar makes a substantial move in either direction it forces massive readjustments across the board.  Remember at the top of the “food chain” sits interest rates which are tied directly to the flow of dollars in and out of the various markets.  The U.S. dollar remains the dominant international currency  for trade but the brewing battle amongst the top tier isn’t over, leaving the “pissing contest” between the uber rich in place.

Interesting thought – the list of missing Chinese billionaires continues to grow.  As of the end of 2015, there were 36 missing Chinese executives.  That and a softening economy moving towards experiencing  a good old fashion western economic recession has triggered a recent string of landslides (down 7% within the first 30 minutes of trade) on the Shanghai exchange.  Makes you wonder if the same thing happened to a string of TBTF exec’s on Wall Street would the reaction be one of bewilderment, confusion, and potential panic or one of extreme relief!

Wednesday was the type of volatile trading day that many day traders live for.  Successfully trading it though takes the ability to move very quickly in and out without much regard for anything else but how many ticks you are tossing into your pile versus someone else’s pile.  So here is hopefully the best advice I can give you in developing the skills to step in and trade volatile and incredibly quick price swings.  buybuybuysellsellsell

“Learn to trade without emotions.” 

This is honestly easier said than done.  Ridding oneself of any number of old and no longer useful habits, i.e. the family members I mentioned above, is a process that can be confusing and incredibly frustrating.  But one that commitment to, is essential towards succeeding in rejecting the old habit in favor of embracing the new change.  Often, I have found that the new change can be taking two steps back in order to reset your thinking, and then make the necessary changes to an “old” habit by retooling it to fit your current situation.

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

Opportunity 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 tomorrow’s post for charts of the $CL and $YM with trades and discussion.

Happy New Year…Are We There Yet?

The first trading day of 2016 produced an awesome volatile day with many “decoupling’s” taking place.  The finish of one year and the start of the new year often produce numerous “decouplings” as money begins to shift strategy.  China got things going coming into Monday morning with the major equity exchanges shutting down after dropping 7% in 7 minutes.  Being a trader, I live for volatile days. I also freely admit that I need to be careful of what I ask for.  Monday’s markets were a solid case in point.  Major moves across the board complete with “decouplings.”  It became important to not “multi-task” and attempt to trade too many markets.  Even with a large pile of “fun chips”,  it can become frustrating and costly.

fainting_trader_China_2016Word to the wise: please accept and embrace that we used to have the capacity to trade from morning till night, on little or no sleep and trade 100’s of contracts in multiple markets and classes. — Accept that in a given trading today,  there are many strategies firing orders in and out of the markets. News travels at the speed of light as do most trading platforms and as is often the case, there are way too many opportunities to trade.  The added caveat is that all are not going in the same direction at the same time and support/resistance is being reduced to liquid magma flowing  up and downhill as volatility ramps everything up a notch.  The swings can be both joyful and frustrating when “normal” highly correlated  markets “decouple” as the fear factor is thrown into the ring.  This was the case on Sunday afternoon into Monday morning as new years trading started with China kicking a huge, huge can down the Great Wall that rolled around the globe in seconds.

In the world of algorithmic trading, attempting to electronically trade in most of the futures markets using different algorithms will become a daunting task that will sour your spirit if you’re not careful.  Narrowing your focus to two maybe three of your favored futures will allow you to keep tabs on the ability of your trading strategy to actually fire actionable signals properly.

High-resolution 3d rendered binary tunnel for technology backgrounds

Being that, there are numerous strategies trading everything under the sun and that, the desire to trade everything tends to suffer greatly from the ability to actually monitor multiple markets and adjust strategy in line with the larger move(s).  Periods of indecision often produce “choppy” or range bound trading.  Algorithms fire constantly and when a large group either pauses or stops within a particular strategy it creates a vacuum of sorts.  The market will trade in a much tighter range but continue to fire buy and sell signals that meet the strategy guidelines but end up being stopped and reversed for a quick string of losses.  Adjusting strategy to smooth out signals is important and I personally find it much easier to keep that control in line when I apply it to a maximum of three markets on extreme volatile days.

Monday was such a day.

Are We There Yet?

To get back to the question asked in the title of today’s post, the simple answer is no – not likely.  More importantly, though, I believe it remains important to trade each day without an opinion as to what the “fair value” is or should be.  I leave that up to someone else to figure out and trade on.  I do, though, keep track of the weekly and monthly charts and keep an ongoing Elliott Wave count for the S&P 500, the DJIA, the NASDAQ, the Dollar/Euro, Crude Oil, Gold, and Silver.  Over the next week or so I will be updating the “counts” and how that relates all the way down to tick charts.

In the coming week I’ll take a look at Crude Oil.

crude_CL

Logical Market Update: From That to This & This…

 From that to this & this…

For most of this week the best trading has taken place within the first couple of hours of U.S. trading.  But it appears that once lunchtime rolls through the East and Central time zones volume does a vanishing act.  Which often leaves computers with nothing to do but switch over to selling volatility, which often leads to a resumption of the larger trend as volume returns for the last 10 minutes of trading.  A period of time between 10 minutes prior to 15 minutes after the equities markets “close” that is reserved for price marking. 

The bulls had a tough time making their case on Friday, even with an options expiration “pinning” got skewed with the indexes moving lower.  Russell 2000 traders saw fit to jump in strong this morning but quickly lost steam as the selling opportunities out weighed the buying opportunities.  Bonds, gold and silver did manage to hold higher levels as expected.  The Euro did not take its cue from steady to lower U.S. bond yields with the Dollar again gaining.  Here again, though, the bulk of the move took place during the European session leaving U.S. trade locked in a tight intraday range.  A stronger take away is that the Euro decline may be back underway barring any disruptions to the cross rates.

 

Next week is likely to kick off with some stronger weakness.  Current expectations favor additional downside as the markets correct and consolidate.  The line(s) in the sand lie well below current levels.  While I’m not looking for the mother of all corrections it may feel that way on an intraday basis.  The Elliott Wave patterns continue to favor a sequence of corrections with higher lows followed by rallies to higher highs still being in force.

 

Statistically and cyclically, September and October tend to be down months.  In fact, the most severe downside damage has taken place on a Friday or Monday in September and October and that would include the “crashes” of 1929, 1987, 2001 (Internet Bubble Burst), 2007 (Housing and RMBS), 2008 (Global Financial Meltdown).  Also taken into consideration were the “Flash Crashes.”  All in all during these periods the markets have corrected down.   Volatility has increased substantially; volumes have increased substantially as prices move with a greater velocity, and the move is felt across the equities, treasuries, precious metals, forex, and commodity markets all moving in tandem with regards to direction.

 

As a near-term and intraday trader the move I’m expecting also statistically carries a much higher probability of larger profits as prices swing in both directions.  This type of corrective period does not necessarily get contributed to anything that resembles reality – the larger decline that will be properly tied has yet to be realized.  In fact when it does happen most won’t acknowledge it until it is more than 50% complete.

 

What I’m looking for should be considered as more of a mini version – a practice session played out with real money.

 

I came across a site with some great pics of trading floors of old.  So as an old market maker (San Francisco, London, Amsterdam, and Frankfurt) and in fond remembrance of the years I stood shoulder to shoulder in numerous trading pits I thought it appropriate to share  —

 

Trading has gone from this:

tradingpit20_30YRPIT

 

 And this:

bonds89

 

To this:

high-frequency-trading-NYSE

 

And this:

high-frequency-trading

Which has produced this:

 

gordian_knot

 

 

A “Gordian Knot” an often used metaphor for an intractable problem, such as disentangling the impossible knot by means of cheating or “thinking outside the box”, which is also known as “cutting the Gordian Knot.”

 

 

Using the Hawk Micro Scalper, Falcon Swing Trader, and the Eagle Trend Trader within the equities markets can produce strong results.  Trading equity options can be used to add “beta” to an existing trade or as “the” trading vehicle.   Be sure to check out Part One  – “Options Basics and Understanding Theta is Your Friend” of a seven part series I’ve written on “Trading Options Using the Diversified Trading System” by clicking here.

 

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 (7/31/2013) 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 for experienced traders
  • S&P-500 future (e-mini available) – highly recommended large intraday moves.
  • Russell 2000 future (e-mini available) – highly recommended can lead in either direction.
  • NASDAQ 100 future (e-mini available) very highly recommended and dominated by AAPL, AMZN, NFLX, GOOG, and TSLA
  • US$/Euro futures (e-mini available) – very highly recommended – easy to trade afterhours as well.
  • V (Visa) – stock and options – recommended – large swings in both direction likely
  • MA (MasterCard) stock and options – recommended – $600 stock – large swings likely
  • GS (Goldman Sachs) – good two way volume –
  • AAPL (Apple Computer) – highly recommended – Options trading as well
  • 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
  • EURO FX (futures, mini and micro contracts available) very active suitable for all account sizes

 

 

 panultimateHFTsetup

 

 

 

Have a Great Weekend! —

 

Logical Market Update: Day Two – Bulls Attempt to Stage a Comeback

gold forecast

Day Two and the Bulls Attempt to Stage a Comeback – Gold Stocks Back on the Radar – Time to Begin Buying?

The markets followed through on Tuesday’s selling finishing what I’m considering the initial (first) leg down.  Interestingly though, when the bulls moved in to stage their comeback, the volatility indexes were first on the firing line.  By the close a decent bounce higher was in place.  I’m not so sure the markets are convinced though that the drop off of recent highs was just an apparition, with the bulk of the closing madness being on the sell side.  The initial leg down remains in progress and while there may be additional buying tomorrow with the potential for an up day not off the table.  Even the last minute marking battle favored the bears leaving the bulls to push the futures and ETFs after the close.  What a joy it is to know that the exchanges still have a soft spot for their larger players giving them an extra 15 minutes to hedge – yeah right!  Current parameters remain valid for the broader indexes.  Tesla, Green Mountain Coffee Roasters, and Groupon reported earnings after the close.  TSLA jumped $18, GMCR fell $6 and GPRN popped up $2.50.  The saying “Only the Good Die Young” is somehow now more believable.   

 

Bonds put in a solid rally today and managed to hold it through most of the day’s gyrations in the equity and forex markets.  Expectations remain in place for a continued recovery rally to unfold before the next leg down takes over.  Again, any clues to direction will likely begin in the 10-year note.  The Dollar got caught between a rock and hard place as the British Pound was pounded into submission after comments from the Bank of England.  The rally in the Euro was again contained to the first hour of U.S. trade with most of the action being within the European sessions.  Most of the U.S. trade was held to a slightly expanded range of 20 ticks. 

 

 

Gold and gold stocks are back on my active radar after the latest bashing brought the gold stocks to gold ratio to a long-term low, further bashing would likely lead to this ratio testing the 2001 lows.  The damage is deep across the board.  Since January 2013 gold has dropped from $1700 to $1180 and gold stocks have fallen more than 50% and that would be amongst what are considered to be the titans within the mining sectors.  Weaker companies were cut off at the knees loosing up to 75%. 

 

The AMEX Gold BUGS (Basket of Unhedged Gold Stocks) Index is a modified equal dollar weighted index.  The component companies are involved in gold mining.  HUI is one of the most watched indices and retains titan status next to the XAU index.  The unhedged part of the index name is the basis for the index.  Its component companies do not hedge their gold production beyond 1.5 years.  The table below lists the current company components and their weighting.   

 

Component Companies (HUI)    
Company name Symbol Weighting 
Goldcorp Inc NYSE: GG

16.20%

Barrick Gold NYSE: ABX

15.37%

Newmont Mining NYSE: NEM

10.88%

Harmony Gold Mining Adr NYSE: HMY

5.21%

Coeur d’Alene Mines NYSE: CDE

5.11%

Yamana Gold NYSE: AUY

5.00%

Anglogold Ashanti Ltd Ads NYSE: AU

4.88%

Gold Fields Ltd Adr NYSE: GFI

4.80%

Randgold Resources Ads NASDAQ: GOLD

4.71%

Iamgoldcorp NYSE: IAG

4.43%

Eldorado Gold Corp NYSE: EGO

4.34%

Hecla Mining NYSE: HL

4.14%

Comp de Minas Buenaventura Ads NYSE: BVN

4.08%

New Gold Inc NYSE MKT: NGD

3.90%

Kinross Gold NYSE: KGC

3.85%

Agnico Eagle Mines NYSE: AEM

3.11%

 

 

 

 

 

 

 

 

 

 

The HUI Index has been hammered, as the component companies have been sold in step with the decline in physical gold.  Off of the September 2012 high the HUI has dropped 323 points (60%).   Currently 2013 has not seen any favoritism towards the HUI.  But that may be about ready to change.

 

The weekly chart below details the decline beginning off of the September 2011 highs.  The pattern in place, which encompasses the rally off of the 206.66 June 2013 low to the July high at 263, took a lot of momentum to achieve less than 60 points.  The sharp decline in the last two weeks may be the beginning of an exhaustion decline, which could set the stage for a more sustained and dynamic rally.  The stochastic oscillator has again slipped into oversold readings, but has not shown any signs of turning yet.  Currently the HUI is likely to drop to a new low under 206.66 before the next sustained rally phase takes over. 

 HUI_WEEKLY_AUGUST_07_2013-08-07-TOS_CHARTS

An additional important measure of value for gold stocks is the HUI – gold ratio.  The HUI-gold ratio is an expression, which compares the HUI index to the price of gold.  The ratio is calculated by dividing the value of the HUI Index by the price of gold.  Yes, it really is that simple – and here’s the kicker – when this ratio is very high, it correlates to gold stocks being expensive in relationship to gold.  Conversely when the ratio is very low, it correlates to gold stocks being relatively cheap relative to the price of gold.  The HUI-gold ratio bottomed in 2001 reaching a top in 2004. Progressively deeper major lows have occurred in late 2005, late 2008 and June 2013 as the bear market likely moves into its final stages.

 

Bollinger Bandsmeasure the “high” or “low” of the price relative to previous trades and are considered a volatility indicator.  Therefore by definition prices are high at the upper band and low at the lower band.  This definition can help in pattern recognition and when combined with additional indicators help to arrive at decisions as to direction or trend. 

 

The chart below keeps in perspective just how far the HUI has dropped and is likely in the finishing stages before a trend change takes place. 

HUI_WEEKLY_BOLLINGERBANDS_2013-08-07-TOS_CHARTS

It is time to move Gold, the HUI Index, and gold stocks back on the radar.  Opportunities are already presenting themselves and traders that already trade gold via one of the DTS “birds” should find solid profitable opportunities as the bear market finishes and the bull takes the reins.  I will be adding to our list below as this sector jumps back. 

 

 

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 (7/31/2013) 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 for experienced traders
  • S&P-500 future (e-mini available) – highly recommended large intraday moves.
  • Russell 2000 future (e-mini available) – highly recommended can lead in either direction.
  • NASDAQ 100 future (e-mini available) very highly recommended and dominated by AAPL, AMZN, NFLX, GOOG, and TSLA
  • US$/Euro futures (e-mini available) – very highly recommended – easy to trade afterhours as well.
  • V (Visa) – stock and options – recommended – large swings in both direction likely
  • MA (MasterCard) stock and options – recommended – $600 stock – large swings likely
  • GS (Goldman Sachs) – good two way volume –
  • AAPL (Apple Computer) – highly recommended – Options trading as well
  • 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
  • EURO FX (futures, mini and micro contracts available) very active suitable for all account sizes

Logical Market Update: Morgan Stanley’s Selling What? NYSE Margin Debt & S&P 500 All Time Highs

Trader riding Elliott Wave

Second Verse Same As the First: Morgan Stanley Pushing Non-Prime Fund to European Investors – NYSE Margin Debt and S&P 500 All Time Highs

To say that people learn from their mistakes is a fabrication.  Seems that several of the TBTF banks have decided to repackage their sub-prime mortgages and ship them off to Europe to offer yield hungry investors a chance to buy in.  Morgan’s latest fund was launched in December 2012 and by the end of June 2013 had $286.5 million invested.  The fund manager aims to pump up the volume to a total of $1 billion building on the investment case that buying non-agency RMBS (sub-prime) because the fundamentals in the U.S. housing market are strong enough to overcome any bad feelings Eurozone investors have from being burned that last time this bubble burst in 2007.  The rational being pumped out by MS is incredible and strongly confirms my suspicions that the housing market has again reached a top.  It may take some time before the majority catches on but if history has anything to say, it will be far too late and many will again get burned.  I wonder how many puts MS and other TBTF banks are buying as they bet on another bubble bursting. 

 

Balance the above against the fact that Eurozone securitizations placed publicly during the first half of 2013 sank nearly 30% over the same period in 2012.  No wonder MS believes they have a high chance of peddling the good faith and credit of the U.S. to Eurozone investors who don’t believe in the good faith and credit of the Eurozone!  What a tangled web they weave.  Remember, there is so much more risks to be off loaded if the TBTF banks are to continue making huge quarterly trading profits. 

 

Add in to this the huge problem of underfunded public employee pension and benefit plans that will begin to bring down many more municipalities.  Detroit’s bankruptcy filing is by no means the lone standout amongst the many across the country that are attempting to deal with underfunded plans.  Several states have made huge promises over the years and now that it is time to pay the piper are screaming foul.  This is a fact and will ultimately lead to the collapse of many more U.S. cities, counties, and states.  Bankruptcy lawyers stand to make a fortune. 

 

A simple fact is that a small uptick in interest rates by the FED would likely be enough to turn the tide.  Consider how much money has been poured into instruments that are designed to increase in yield as interest rates fell.  Seems like the smart thing to do right – borrow funds at 3% and generate a 6% return.  Leveraging to the max was not only prudent but continues to be the trade.  Problem is the folks making the trade are not trading their own money.  They are trading public money and doing it at record low rates. 

 

Should the Federal Reserve raise short-term interest rates by 0.25% liquidity would disappear which would increase margin requirements (yes, all that money put into the investments is borrowed) and more than likely force several liquidations at huge losses.  Important points to remember the investments were not bad, what will destroy investors, are the leverage levels.  Which brings me to my next point.

 

Anybody checked the NYSE margin numbers lately?  I know most people don’t talk about it, but the reality is that most of the buying taking place at record high levels is done on margin.  In fact NYSE margin debt is again at all time highs.  So as the markets rally to new highs investors are more leveraged than at any other time in history.  Greater than in 2000 and 2007 – let’s take a look at what happened then.

 

In March 2000, margin debt on the NYSE reached above $278 million setting a new record at that time, then it began to fall.  A few months later the S&P 500 reached above 1500 and promptly proceeded to loose 45% of its value over the next two years. 

 

In July 2007, NYSE margin debt set a new all time high above $381 million, before turning lower.  Within two months the S&P 500 reached a new all time high at 1550 before dropping over 60% of it’s value over the next eighteen months. 

 

In April 2013 NYSE margin debt again set a new all time high above $384 million and has turned lower.  During the next three months the S&P 500 has moved to new all time highs several times reaching above 1700 on Wednesday. 

 

If history has any to say about what is coming next – look out below. 

 

I am continuing to include the graph of the Federal Reserve’s outright holdings. This chart needs no additional explanation and is included to keep in perspective who has the motivation to keep it all going.

FedHOldings

 

 

The broader indexes again moved to new all time highs for the DJIA and S&P 500 with the Russell almost there and the NDX adding to its string over new recovery highs.  Bonds resumed the declines with yields advancing – the Euro resumed its decline as the Dollar rallied.  The basis for the rallies was pinned on the better than expected drop in initial unemployment claims to five and a half year lows.  Does anybody else see the irony in this?  The FED has made clear that one of the criteria for to cut back on purchases would be a drop in the unemployment rate.  Ok – sounds clear to me – and the bond market took that to heart on Thursday dropping over a point signaling a strong belief in interest rates going up.  The dollar responded by rallying which falls in line with expectations.  Now, the equity markets seem to be in a world all their own and are holding on to what the FED comments stated yesterday – that the FED will continue to hold rates at current levels into 2014.  Now that is putting all your eggs into one basket labeled the good faith and credit of the U.S. Federal Reserve.  I’m not sure what to say about that.  Let’s see what happens tomorrow after the release of the July jobs numbers.

 

Technically, the broader markets remain extremely overbought and now that additional resistance levels have been reached the probability for a period of correction and consolidation has gone up substantially. 

 

The 30 – year bond dropped close to two points with the 10 – year note dropping over a point.  Support at 132’10 in the 30-year bond held with a breach occurring late in the session.  The 10-year note is likely to follow suit with a drop to support at 123’30 to 123’11. 

 

The Precious Metals held to tight ranges today wrapped around unchanged.  The equivalent ETF’s though (GLD and SLV) dropped harder.  Nothing has changed here gold would need to break below 1300 and silver below 19 before the probability for another test of downside support would be in the near term picture.  Thus far, the market continues to signal that the lows are in. 

 

The Euro touched the 1.32 support level before bouncing slightly higher into the U.S. close.  The failure of yesterday’s rally gives strong support to the decline dropping to support at 128. 

 

 

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 (7/31/2013) 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 for experienced traders
  • S&P-500 future (e-mini available) – highly recommended large intraday moves.
  • Russell 2000 future (e-mini available) – highly recommended can lead in either direction.
  • NASDAQ 100 future (e-mini available) very highly recommended and dominated by AAPL, AMZN, NFLX, GOOG, and TSLA
  • US$/Euro futures (e-mini available) – very highly recommended – easy to trade afterhours as well.
  • V (Visa) – stock and options – recommended – large swings in both direction likely
  • MA (MasterCard) stock and options – recommended – $600 stock – large swings likely
  • GS (Goldman Sachs) – good two way volume –
  • AAPL (Apple Computer) – highly recommended – Options trading as well
  • 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
  • EURO FX (futures, mini and micro contracts available) very active suitable for all account sizes