Market Analysis
Twelve years after the end of the financial crisis (which led to the creation of $BTC) and twelve months after the start of the pandemic, we are witnessing the start of the correction that many of us have long been waiting for. Or is this just another buy the dip situation? A number of things indicate that this is not just another pull back. This month, let’s do a deep dive into these market possibilities.
We would like to point out the divergence between the price, the MACD (Moving Average Convergence Divergence), signal line, and the RSI (Relative Strength Index) which are all illustrated above. Notice the 2 down trending trendline oscillators (MACD, Signal Line and RSI) that diverged from real price and volume. That is a real strong signal for change in the tone of the markets.
Next, we will look at the Gamestop ($GME) phenomenon. John F. Kennedy’s father said, “If shoe shine boys are giving stock tips, then it’s time to get out of the market.” This parallels the modern GameStop phenomenon of the Wall Street Bets Community. When everybody is doing the YOLO (You Only Live Once) trades and saying that “STONKS only go up”, you’re probably getting pretty close to a market correction. Take heed traders, it is better to err on the side of caution.
What are professionals and institutions looking at? When interest rates start to surge higher and we start to hear about inflationary concerns (due to governments around the world printing money with wanton abandon), you should start to get a bit concerned. Most market corrections are preceded by a change in the yield curves as money flows out of the equity markets and back into the bond markets. Bonds are considered safe compared to risky equities. As yields start to increase, money flows back into bonds and the U.S. dollar, and out of equity markets (profit taking). That makes even more sense when considering the massive gains the stock markets have made over the past twelve months.
As pictured above on the iShares 20 Plus Year Treasury Bond ETF $TLT, the bond prices seem to have capitulated after getting super extended to the downside, which is another possible signal for change. The trendline on the RSI has not triggered yet, but volume on $TLT seems to say that change is happening or coming soon.
Finally, a correction of 10% would be healthy for a market that has run as far as this one. Even a 20% move down into bear market territory would be acceptable, considering the size of the gains over the past year. It seems that most people have forgotten the fact that we are in a worldwide pandemic that shut down most of the world at one point or another. It’s safe to say that we can expect volatility to come surging back into the markets.
This DAS Trader Chart of $VXX confirms that as well. You can see the divergence clear as day between the RSI and MACD on the $VXX price and volume chart.
What can you do to protect yourself during volatility?
One possibility is to use options to hedge your stock portfolio by buying $SPY, $QQQ or $DIA puts to make money on the way down, while holding some of your most resilient core positions.
Learn more about trading options in our Intro to Options with DAS series on YouTube.
The same play can be made on a speculative basis, by getting out of any of your core positions and using the options as a way to play the downside action. (All examples are for educational purposes only.)
The risk of trade is just to get out! Go to cash for a short time while the market figures out what it needs to do. Hopefully, you locked in some great profit during this massive market move.
Whatever you decide to do, take notice of the indicators that are all saying “something has changed”. There are numerous divergences (divergence – A signal for change) that traders and investors are supposed to use. Read our professional trading tools such as the DAS Trader charts and objectively interrupt what the market is telling us.
What’s New From DAS
Improvements
February has been a very busy month for us here at DAS! We released two new production versions: 5.6.4.1 and 5.6.4.2. Both versions include an extensive list of updates and bug fixes to the DAS Trader Pro platform.
Improvements/Features
-Added configuration for maximum number of global trend lines in Setup->Other Configuration.
-Added icon for Result window.
-Added fundamentals data display in Result window.
-Added sector display.
-Added more info for trading halt.
-Added ToggleDragMode hotkey toggle between hand and arrow cursor.
-Added “Withdrawal” status for withdrawal order.
-Added feature to right click Account Monitor to update BP.
-Added CMDAPI command “GET SHORTINFO Symbol” to query symbol shortable / margin rate.
-Number of routes in the route list can be more than 255 now.
-Added Auto fit to order flow window.
-Added “Total P&L” (Un P&L + Net P&L) column to the Account Monitor window.
-Set topmost windows to non-topmost when opening the dialog window, then restore to topmost after the dialog window is closed.
-Added confirmation message box if reached PDT round trip limitation.
-Added Hull Moving Average.
-For the Montage hotkey window, add the option “Add button to left” and “Add row to top”.
-Added “Curr EQ Lmt” to risk management.
-Updated stop trailing percentage order.
-Added support for order replace in replay mode.
-Added “AvailLoc Query” button to Short Locate window to query left/available located shares for short.
-Count in marginable symbol’s margin rate for script Share=BP*N.
-Retrieve stock “issueMarket” to calculate UP/DOWN PL for account monitor.
-Updates for TradeSignal.
-Quote Replay: Added “Back Ns” button to go back N seconds
-Chart: Added feature to click and select VWAP anchor period.
Bug Fixes
-Right clicking Account crash issue is fixed in this release.
-TradeSignal is set to default at no popup when a new message comes in.
-Border color can’t save/load when set to black color.
-Options Chain – Colors of ITM/OTM don’t work for SPX.
-Chart: Fixed time axis font size issue.
-Fixed NYSE Tape color issue
-Fixed mail.dat file open error.
-Bug fix – for admin order/traders window, don’t filter for non-existing accounts.
-Bug fix for CMDAPI “cancelling quote replay order” issue
-Bug fix – Position window “Diff” column not refreshing when level changed.
-Bug fix – for the number in hotkey Price=
-Bug fix – Options chain window’s column widths reset after switching symbol.
-Bug fix – Market viewer not importing/exporting csv correctly.
-Bug fix – Only original positions window can save account filter
-Bug fix – Market viewer not sorted after top list update.
While the list is too extensive to mention every update in this newsletter, we highly recommend that you review the release notes here.
Please be sure to install the latest version of the DAS Trader Pro platform. You can do this very easily from DAS by clicking Tools > Auto Upgrade. You can learn more about the Auto Upgrade feature in our Knowledge Base.
Watch our Streams on YouTube
We are happy to announce that we have recently changed the format for our live streams! You can view the most recent live stream here as well as all of our live streams from this link.
If you have any ideas for anything you want to see on our live stream, please send us an email: newsletter@dastrader.com.
#1 Best Trader Spring Competition
Registration is now open for the first of our two trading competitions of 2021. This competition is open to novice traders. We will be offering an early bird special for the first week of registration (3/1-3/8); save $50 when you sign up during this first week! Keep in mind that the earlier you sign up, the more time you will have to take advantage of bootcamp. Go to 1besttrader.com to learn more and sign up.
Market Research and Analysis provided by Michael DiGioia, Director of Institutional Sales
