Diversified Trading Institute

We wanted to shares some statistics on recent market activity that we find truly amazing.  Long term StockYard subscribers will recall how we have discussed for over a year the tendency for the equity markets to have extremely positive results on the first trading day of each month.  In fact, the entire gain of the past several years can be traced to just being in the markets on the first trading day of the month.  It has been a very effective method of capturing gains with limited risk exposure to the markets. 

After the gains on Monday January 25 the Dow Jones Industrial Average (DJIA) has now risen an incredible 19 of the past 21 first trading days of the week (either Monday or Tuesday after a holiday).  Even more interesting is the fact that 80% of the rally from the March 2009 low can be traced to the gains that have occurred on these first days.  This certainly could be the fodder of conspiracy theorists and we have no logical explanation but we do like to track price behavior.  Always follow price action in your trading and it will lead you to many new discoveries.

For More information on trading, please contact DTI at:

DTI Partners, Inc.

1.800.745.7444

http://www.dtitrader.com

Disclaimer:

Trading Futures is Risky.  Past performance is not indicative of future results.  Understand the

Risk before you trade. 

DTI – 1555 University Blvd South – Mobile, Al 36609

Monday, January 25, 2010

The markets came into this week in short term oversold condition but still weak.  They were able to post mild rallies on Monday but really are still feeling their way through the markets here.  This week is like a gauntlet of economic news with many big items still left for the market to navigate.  It is like the Existing Home Sales yesterday and the Consumer Confidence number today were just the warm up acts.  Wednesday brings us New Home Sales in the morning followed by the FOMC Statement in the afternoon.  This is also a tentative vote scheduled for the Fed Chairman Nomination.  Any surprises here would certainly throw the markets for a ride.  Even after the FOMC Wednesday, there is more to follow with Unemployment Claims and Durable Goods on Thursday and an Advance GDP report on Friday.

This will be a lot of data being released that the market must deal with and can certainly create havoc in the markets.  With the market in the midst of its most intense decline since the rally began in March 2009 it could lead to a volatile week in the markets and traders should be prepared. 

Darrell Jones
DTI StockYard Editor-in-Chief

Trading a Trading Range:

The stock market indexes have rallied strongly for 10 months but have stalled and formed a trading range at the top of the price range.  The sideways action can be determined by a dropping ADX, price bar overlap and the lack of price progress upward.  In addition to the trading range on the daily charts, the hourly or 60 minute charts have begun to form a range also.

It is important to not over trade during a trading range. The market is building energy for the next move either up or down.  Most trading ranges will end with a lower high or higher low put in place and often with divergences in momentum oscillators. 

There is strong resistance in the ESH10 price area of 1147 and there is strong support at 1125.  These price zones can be tested repeatedly and entering too early will lead a trader to poor results.  It is best to stay in short term scalping mode and not play for larger price moves until we see one of these areas decisively taken out. 

Be Flexible and Watch the Numbers

After an early attempt down, the market traded higher on Wednesday as the consolidation continued.  The indexes have a triangle pattern in place with a high and a low during the past three days and neither was recorded on Wednesday.  This is a breakout pattern and we could see a range expansion and better move on Thursday.  Should this fail to materialize then another day of consolidation is likely.  The indexes continue to have glaring long term (daily chart) issues that signal a more lasting correction is near.  Given that the bull market rally has now lasted 10 months and the normal time frame for a rally such as this is 9 to 12 months we have arrived at a logical spot for some weakness. 

There are numerous sell divergences in place and the weekly MACD has been flat lining and trying to turn over.  These types of tops are typically not quick to occur but rather take time.  In terms of trading them it is always better to sell AFTER the top is in and not begin selling too soon.  These runs can extend as the top is being put in place.  As a long term investor, it is certainly time to review your portfolio and make sure you have a solid game plan.  This may be different for each person but ideas such as tightening stop losses, selling calls or buying puts, and possibly flat out raising some cash could all be utilized to protect hard earned profits.

In addition to certain indicators we track beginning to flash warning signs, the sentiment indicators are quite concerning.  Investors Intelligence shows a level of bearishness at 15% which is the lowest recorded in over two decades.  Also, the put call ratios are at extremely low levels and in some cases the lowest in two years.  Finally, the cash levels which had been an argument for a rally back in March are drying up and are showing low levels of cash on the sidelines.  This cash is often fuel for rallies because it will find its way back into equities at some point, particularly when interest rates are low like they are now.  Trading tip to remember… be flexible and focus on the numbers.


Darrell Jones
DTI StockYard
stockyard@dtitrader.com