Thursday, September 07, 2006

Market Psychology AM Update for 9/7/06

10:40 AM CT - Just a parting note. Take a look at the previous entry and notice how we made the low in ES around 9:50 AM, but did not make AM lows in the NQ or Russell (ER2). My hope is that you can take away from these updates at least one useful idea per day. The important idea here is to watch sectors and other indices: not just the one you're trading. A move to new highs or lows that displays poor participation (see my recent post) is less likely to continue in its direction than one that is confirmed across the board. Update on the Weblog tonite.

9:46 AM CT - Notice that, after the bounce, we're getting lows in ES but not so far in Russell. Keep an eye on such divergences. The best breakout moves don't have those kinds of divergence. I'll be working on the Odds Maker setups this AM and the new version of Market Delta. Hope to have more to report tomorrow. Have a good one.

9:30 AM CT - We're seeing an attempt to put in a short-term bottom around the 1295 (Sep) 1305 (Dec) level. A breakout to new highs in the TICK would support such an effort. I'll post further if I see major developments; otherwise it's back to the research. Have a great rest of the AM.

9:20 AM CT - It's the absence of buyers rather than the onslaught of sellers that is notable here. Right after my last entry, the TICK faltered at +200 and could not sustain further buying. The volume at the bid and distribution of the TICK are dominating, with decliners now leading advancers by over 1600 issues. Selling the bounces will continue to work as long as those bounces in the TICK are so anemic.

9:10 AM CT - Once again, you can see how the absence of strong buying finally got the bears testing those overnight lows and taking us to new AM lows. The TICK, so far, is more positively skewed than yesterday and some sectors are showing some buying interest here. Volume at the bid modestly outweighs volume at the offer, and the TICK is moderately negative. I'm alert for the possibility of a reversal this AM, especially if we see sectors unable to make AM lows even as the major averages make or test lows. That distribution of the TICK will tell us a lot. It's when those thrusts to negative TICK extremes no longer produce new price lows that you want to think long and hard before chasing lows.

9:00 AM CT - Volume is a bit tough to read here because only about 2/3 of volume has migrated over to Dec. But you can see from the muted range of the TICK that we have very modest volume and rangebound trade--a surprise, given the drop yesterday and overnight. I hope you were able to see what I referred to in my last entry re: the muted response of the bulls. Buying dried up as we tried to break 1299 on the Sep contract. 1310 is the equivalent Dec. level. So far, however, we're also not picking up meaningful volume to the downside; nor is the TICK going significantly negative. We'll keep probing the highs and lows of this muted range until one side gets some volume going. I like to watch the distribution of the TICK for clues as to possible breakouts. In general, however, I avoid this kind of slow, rangebound action. Russells still look heavy.

8:47 AM CT - Please note that I'm still quoting levels from the September ES contract, though a good deal of volume has migrated to the Dec contract. Russell's a bit weak here, and decliners outnumber advancers by over 1200 issues. Note the difficulty so far in breaking that resistance at 1299; and how that set us up for the downside test. Establishing those trading ranges and tracking attempts to test the edges of those will often set up good initial AM trades. We have a nice range mentioned below, and the edges should give us a clue if bulls can muster strength here. So far, their counter has been muted.

8:35 AM CT - I think all trading should be done with lasers and glow sticks. And 135 bpm. Anyway, recent pre-opening selling has held in that 1296.50 area and we see pre-opening resistance in the zone from 1299.25 - 1299.75. So let's see the bulls take their turn and try to break that resistance. That will set up an initial trade for the short-term folks--either to test overnight highs just above 1301 or to retest the lows and the 1294.50 lows from late August. Back to the lasers.

8:00 AM CT - Good morning. The music is blaring in my office (although it's hard to hear the singer from the audience; but, hey, what's a club for?!) and the market's trading, so what can be bad? Check out the Weblog if you haven't already; it notes the very broad downside momentum in yesterday's market. After such a broad momentum down day, returns 1-5 days out are subnormal. And that's what we're seeing so far this AM: a continuation of the short-term downtrend noted on the Weblog. Recall that volatility in the pre-opening market tends to correlate well with volatility during the day session, so we're once again setting up for some movement here. We're well below yesterday's average price, and the general rule during downtrends is to sell bounces that stay below that average. My leaning on mornings like this is to not chase weakness, but to wait for the buyers to take their turn and show what they've got. If we get another situation like yesterday where the buyers try to take the market up and large sellers hit bids in force, then it makes sense to ride the downtrend. My posts this AM will be limited; I'll be spending time with research and new software that, hopefully, will contribute to the blog over time. OK, back to the music; see you after the open.

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