Friday, September 22, 2006

Market Psychology AM Update for 9/22/06

10:40 AM CT - One other observation: Note how the TICK bottomed out well ahead of the major averages and then made higher lows as the averages tested their lows. That drying up of selling pattern in the TICK is one that is pretty common at short-term market bottoms. Have a great remainder of the day.

10:23 AM CT - Trying to put in a bottom here. Keep an eye on that TICK distribution; we've seen higher lows. Gotta run; have a great weekend.

10:00 AM CT - My best guess is that institutions are selling ER2 as part of a "weak economy" play. As long as that's the case, we have a chance to take out those recent lows.

9:55 AM CT - Interesting sell program just hit ER2 and not the large caps.

9:42 AM CT - As you can see, the continued negative distribution of the TICK is indicating that we haven't shifted from sellers being aggressive to buyers taking the lead. And we're at key levels. While I'm cautious chasing weakness, I'm also not buying until volume in ES and TICK show me a better shift toward buyers.

9:35 AM CT - There's a bit of a bid underneath NQ and ER2 right now and that's a shift from earlier this AM. It may peter out, and I'll be ready to short again, but I'm not discounting the possibility that all averages hold their lows from the 19th as part of a wide trading range.

9;28 AM CT - Market at an important point here, testing the lows of the 19th as suggested earlier. Hope you've been able to fade the bounces thus far. It's how volume responds from here that will determine whether or not we wash out. Watching ER2 closely as well as NQ. Note NQ did not make a low when the others did a bit ago, which led me to cover shorts for the time being.

9:03 AM CT - Significant step up in selling once we broke those lows mentioned earlier, but ER2 was telling you the story first. TICK distribution weak, volume predominantly at bid in ES; this is a weak market looking to test those lows of the 19th, it appears.

8:53 AM CT - Continued selling, and NQ and ER2 are leading the weakness. Looking to test yesterday lows in ES; already have done so in the other averages. Volume hitting bids predominantly in ES. Not drying up of selling at this juncture.

8:40 AM CT - Moderate volume; lots of big bids and offers in the book, with a skew in the TICK and ES volume toward sellers. ER2 underperforming, and we tested the lows from overnight early on. I'm watching carefully to see if selling dries up or accelerates. We're getting near important downside levels in the indices.

8:20 AM CT - My sense is that we're at an important market juncture. We've seen pretty solid selling as we've gotten above the 1335 level in ES, and we've seen pretty solid support in the low to mid 20s. As I note in my last post, we're seeing elevated levels of new highs *and* new lows, and the expected returns two weeks out are subnormal when that occurs. I do think we can make another run at new highs if we can stay above the bottom area from the 19th, with selling pressure drying up. A break below support on expanded volume, negative TICK, and volume hitting bids would represent, IMO, an important trend shift. 1326 is the overnight low; 1325.50 is yesterday's low; 1322.75 is the low from the 19th. Normal expectations would be for a test of yesterday's lows. If we hold, 1331.50/1332 represents a resistance level I'd expect us to test. Note the continued drop in interest rates and fall in the dollar. An important shift yesterday was that stocks responded negatively to this dynamic, fearing economic weakness more than they celebrated the low inflation. That's a regime worth keeping an eye on. Back after the open.

8 comments:

walter said...

how can i monitor the tick distribution?

thanks!

Brett Steenbarger, Ph.D. said...

Hi Walter,

You can monitor the average value of the NYSE TICK by creating a moving average line in a real time charting application and then see if the line is rising or falling. That's a very simple way--

Brett

walter said...

wondering what symbol i would use...

will look on google...

Brett Steenbarger, Ph.D. said...

Hi,

For most real time quote vendors, the NYSE TICK is $TICK.

There are also TICK stats for the NASDAQ and for the Dow 30. I'll write about them sometime soon.

Brett

yinTrader said...

Hi Brett

For an obviously down day, I should have been able to enter a trade on ESZ6, but my order to short at 1334.75 based on 90% probability of market retracing to previous close ie 1230.25 yesterday, did not occur.

This entry signal was based also partly on SP Probability Index of 29.41.

Perhaps, I should just short near the top end of the close without waiting for the US market to open at 930 ET? By then, the ESZ6 has dropped to mid 1320s level.

As the support was hovering around 1322, if I had short around 1329/8 when I woke up in Singapore (12 hours ahead of ET)for an intra day
trade, a gain of 6 points would be a good trade.

Would this strategy be too risky?

Brett Steenbarger, Ph.D. said...

Hi,

I think the important thing is to ensure that any setup you trade has a true edge in the marketplace. If trading late in the session is not part of your researched plans, it's not a good trade--even if it happens to make money. Conversely, if you had a valid setup when you woke up and knew your risk/reward, it could have been a fine trade.

Brett

D TradeIdeas said...

walter can also find free information on tick distribution in our Stock Research section - available anytime.
$TICK-N - NYSE Tick Indicator

$TICK-A - AMEX Tick Indicator

$TICK-DJI - DJIA Tick Indicator

Brett Steenbarger, Ph.D. said...

Thanks for that resource, David!

Brett