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Michael Filighera
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Michael's history with financial markets dates back to 1979 on the Pacific Stock Exchange Options trading floor. Michael has traded in the US, UK (London Traded Options Market), Netherlands (Amsterdam's European Options Exchange), and Germany (DTB). He is also an internationally published... More
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  • When In Doubt - Blame It On Investors Not Gluttonous Mega Banks! 0 comments
    Apr 29, 2013 7:15 PM | about stocks: AAPL, AMZN, GOOG, NFLX, LNKD, GS, IWM, SPY

    When in Doubt - Blame it on Investors not Gluttonous Mega Banks!

    After Friday's disappointing GDP figures were pinned as the reason the markets basically had a more downward bias, investors had the weekend to rethink their decision and came back in on Monday with a renewed spirit of buying in a low volume and thin market atmosphere. Why, because according to several media sources, investors realized that slumping GDP figures will keep the zero interest rate policy in place for the foreseeable future. Really? I don't know about you but I'm not that gullible. In fact I called around to see if there were any real investors who believed the statement and actually were moving into the market this morning because the GDP number presented them with a good buying opportunity. After several laughs, guffaws, a reference to the TBTF banks and a hang-up I stopped.

    I am actually much more inclined to give the benefit of the doubt to the investing public's growing awareness that the recovery is stalling or worse turning negative. Again, who is fooling whom?

    Observations from Monday:

    As the broader indexes were pushed higher on Monday against the growing back drop of exhaustion I felt more confident that the discussion from last week on keeping open the potential for the DJIA, S&P 500 and Russell 2000 to eek out new highs before the next leg down begins was correct. The potential is just as strong going into Tuesday's trade with the DJIA above 14800, the S&P 500 above 1590 and the Russell 2000 being the weakest link on Monday holding below 945.

    Continue to consider that decreasing volumes, momentum oscillators in overbought territory, and a strong feeling of complacency in the air appears to be a classic "trap", one that is about to be snapped. With earnings season winding down even though there are still plenty to report - but outside of what some might consider second tier - expectations for a major market mover seems small.

    Therefore as previously discussed the markets putting in larger corrections off of April or May highs remains in the near-term picture and should new highs (DJIA, S&P 500 and maybe Russell 2000) come first it would suggest more of a rough ride down as the correction rolls through. Again, a 10 to 20% down draft is not out of the picture.

    Expectations for Tuesday

    The Russell 2000 (basis - RUT) may be running out of steam as it seemingly took a back seat on Monday. The previous high is at 954 and while it is well within the realm of reality to reach I would be looking to get short and not believing in a stronger rally being in the making.

    The DJIA finished Monday's session well within striking distance of new highs. I don't think anyone would be surprised to see a gap higher opening on Tuesday be rejected and fail. The pattern in progress actually remains well defined and strongly suggests follow through to the upside before any breakdown begins. .

    The S&P 500 again was close on Monday reaching 1596.65 before sinking back into the close. Again, it would be a mistake to consider the S&P out of the running for new highs. As previously discussed due to the exhausted nature of the current rally and the severe decline in volume I would not expect much follow through if new highs are seen.

    Restated Support levels for the Correction

    DJIA - support at 14550 while tested last week remains in place for now. The next zone is at the 14500 to 14450 area, but eventually downside momentum will prevail with stronger support coming in at 14400 to 13750.

    S&P 500 - Resistance at 1598 to 1600 is likely to be tested as new highs are put in. Support is at 1580 to 1573, 1566, 1559, and 1550, with stronger support below between 1525 and 1475.

    Russell 2000 - Resistance at 935 was tested today, at this point look for this index to make a run for 960 before all is said and done. Support should be found at 926, 920, 916, 912, and 906. Ultimately, it remains highly likely that it could get very ugly for the Russell 2000 with stronger support seemingly far below at the 850 to 820 area.

    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 and GS.

    Repeated from previous blogs -

    Day Trading vs. Position Trading

    Recent discussions have revolved around the necessity to toss out most if not all of your old trading ideas and join the ranks of algorithmic trading.

    I advocate the use of overbought/oversold indicators and momentum oscillators to indicate where money is flowing, where an imbalance of buyers or sellers occurs and a "bull trap" or "bear trap" forms.

    I believe that it only gets more confusing going forward as the market ignores "the writing on the wall" and continues higher with a false sense of security built on negative input. Price volatility has increased with the broader averages easily moving 2 to 3 percent and as high as 10 percent intraday. Many stocks have seen daily trading ranges average between 10 and 15 points, with one day being 15 points higher and the next being 10 points lower.

    This type of action is the primary motivation behind my advocating switching strategies if necessary and focusing on day trading and less on position trading. I do believe there are discernable longer-term positions investors should consider and implement, but the near to mid-term market gyrations have produced far more profitable day trading opportunities without overnight risk.

    I continue to recommend 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.

    Here is an updated list of the markets where I have found that DTS (all three birds) are producing numerous signals:

    1. DJIA future (e-mini available)
    2. S&P-500 future (e-mini available
    3. US$/Euro futures (e-mini available)
    4. GS (Goldman Sachs)
    5. AAPL (Apple Computer)
    6. GOOG (Google)
    7. LNKD (LinkedIn)
    8. NFLX (Netflix)
    9. 30-yr Treasury Bond future
    10. 10-yr Treasury Note future
    11. TLT (Treasury Bond Long ETF)
    12. TBT (Treasury Bond Short ETF)

    Disclosure: I am long GLD, SLV, TBT.

    Additional disclosure: I am short IWM, SPY, QQQ, TLT

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