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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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  • Strong Two Way Trade As Correction Unfolds – Numerous Day Trading Opportunities 0 comments
    May 24, 2013 9:27 AM | about stocks: DIA, SPY, IWM

    Strong Two Way Trade as Correction Unfolds - Numerous Day Trading Opportunities

    The broader market indexes are continuing to correct bringing a much needed return of strong two-way trade. As I discussed yesterday it is vital and important in maintaining a healthy and efficient market for the process to 'normalize', for the markets to move towards where volume will trade. The place where two-way trade takes place and this was evident during Thursday's session.

    They say a picture is worth a thousand words -- Take a look at the charts below to see how a 350 point drop in the DJIA, a 53 point drop in the S&P 500, a 39 point drop in the Russell 2000 and an 87 point drop in the NASDAQ 100 fit into the mid to long-term picture. Barely a scratch! The arrows indicate the support area likely to be reached during this corrective round. All zones are above common Fibonacci support at the .382 levels. (Click on the chart to enlarge)

    DJIA

    (click to enlarge)

    S&P 500

    (click to enlarge)

    Russell 2000

    (click to enlarge)

    NASDAQ 100

    (click to enlarge)

    Although position traders were likely very busy today making adjustments and taking possible profits the methodology that trumped it in my opinion was day trading. The opportunities were not limited to the broader indexes. When a larger correction takes place money shifts across equities, indexes, ETFs, futures, treasuries, and precious metals. The return of two-way trade brought with it far more opportunities than one trader could take advantage of.

    This remains the reason I continue to extol the benefits of day trading versus position trading during these finishing moves of the much longer-term bull market. It may well take another year or another 5 years before all is said and done. Missing opportunities in either direction should not be a part of your trading strategy.

    Day trading has increasingly become my first choice as the markets become more stubborn and push to extremes.

    I use the stochastic overbought/oversold indicator and RSI momentum oscillators to indicate where money is flowing, where an imbalance of buyers or sellers occurs and a "bull trap" or "bear trap" forms. Both oscillators are very useful whether on a tick chart or a monthly chart. Keep in mind that there are many indicators available and when used properly do produce solid tradable signals. Unfortunately, many fall prey to the inexperienced that don't take the time to learn how to use them and therefore get "tossed" into the garbage pile.

    I continue to believe and implement several "core" longer-term positions in, but the near to mid-term market gyrations have produced far more profitable day trading opportunities without overnight risk.

    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.

    Let's Review where we are:

    While I remain firmly in the bullish camp over the mid to long-term I have been expecting and anticipating a correction to begin for the past couple of weeks. The patterns to the intraday highs on Tuesday again show completed 5 wave patterns which in turn complete larger 5 wave patterns which again in turn complete yet a larger 5 wave pattern.

    The Big Picture:

    Staying in touch with what your "big picture" is critical. I spent some time recently updating all my long-term charts. This was important as it gave me a very clear perspective on how large of a correction should be coming. While my expectations is for a decent "slap-down" to occur it is not the "mother" of all corrections as some have forecasted. For example:

    All of the broader indexes (DJIA, S&P 500, Russell 2000, and NASDAQ) began their perspective rallies off of the March 2009 lows. I fully expect additional new highs (several) for the DJIA, S&P 500 and Russell 2000. The NASDAQ may have reached its peak(s) in 2000, however I don't think it would be wise to exclude them just yet. All the patterns are very similar in size and breadth with smaller differences likely within the internal counts. Therefore based on this it appears that an across the board correction is due - but again not the collapse that many are forecasting. That is at least a year or more away.

    (Updated 5/22/2013)

    Here are the updated levels for the:

    DJIA - Support begins at 14865 to 14424 - additional support zones are below at 14369, 14006 to 13644. I would not be looking for a drop into the second or third zone, but rather for the top end to the middle of the first support zone to contain the move and set the stage for the rally to pick up again and take the DJIA to additional new highs.

    S&P 500 - Support begins at 1600 to 1535.55 - additional support zones are below at 1526 to 1508 and 1479 to 1427. Again, I am not looking for a more serious drop, which would take prices into the second or third zone, but the top to middle of the first zone to contain the move. Here as well expectations would be for the rally to pick up again and move the S&P to new all time highs.

    Russell 2000 - Support begins at 953 to 896 - additional support zones are below at 868 and then 836. While a stronger drop can not be ruled out as the Russell has tended to be the weak link previously - but the Russell along with the QQQ's are more tech laden and that has added stronger upside momentum with the Russell 2000 breaking above the all important 1000 level on Monday.

    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 (NASDAQ:TSLA).

    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) - Highly recommended
    2. S&P-500 future (e-mini available) - highly recommended
    3. Russell 2000 future (e-mini available) - highly recommended
    4. NASDAQ 100 future (e-mini available) very highly recommended
    5. US$/Euro futures (e-mini available) - very highly recommended
    6. GS (Goldman Sachs) - good two way volume -
    7. AAPL (Apple Computer) - very highly recommended
    8. GOOG (Google) - very highly recommended
    9. LNKD (LinkedIn) - solid intraday range
    10. NFLX (Netflix) - solid intraday range
    11. TSLA (Tesla Motors) - highly recommended
    12. 30-yr Treasury Bond future - may get quiet
    13. 10-yr Treasury Note future
    14. TLT (Treasury Bond Long ETF)
    15. TBT (Treasury Bond Short ETF)
    16. Gold (futures and ETF - GLD)
    17. Silver (futures and ETF - SLV)

    Disclosure: I am long FAZ, EWI.

    Additional disclosure: I am short SPY, IWM,

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