Wednesday, October 18, 2006

Morning With the Doc: 10/18/06

12:54 PM CT - Quick note for anyone still logged in. Semiconductors led the way down and now are not making new lows even as we've seen new lows in the major indices. Just something to keep an eye on.

10:12 AM CT - Well, it's time for the sound and light machine--a nice cognitive break in the virtual state. We're looking to test the lows; it wouldn't surprise me if we're putting in one of those "transitional structures" for a low. That usually takes some time, however, so I'm in no rush to sell lows or jump in and buy strength. If we see volume pick up as we approach lows and large players hitting bids, then we've got a different story indeed and that 1369 average price becomes the immediate target. Some days like today work out well and you get your piece; other days aren't so profitable. The main thing is to find an edge, stick with it even as the market seems to be going against it, and then take advantage when order flow starts lining up with the research. Thanks for joining me for a morning with the doc. Feel free to email with questions. I'll do this again if there's interest. Have a great morning.

9:57 AM CT - I'm out and now it'll take new setups to get me in. Wrap up in a few.

9:53 AM CT - You can see why it makes sense to scalp around a core short position; that way you're not highly exposed during bouts of short covering such as we just had. When declines in the TICK no longer yield significant price declines--ie. don't produce new price lows or lead to divergences among sectors,--that's when I bail out altogether. Otherwise, I keep a little skin in the game. Wouldn't surprise me to see us try to put in a low around here, setting up a trading range. But let's let the market do the talking... :-)

9:41 AM CT - Hopefully you can review all this after the close and see how the moves have evolved. Notice that, once the downmove is in place and the TICK distribution is shifting down, bounces in the TICK provide opportunities to add to short positions. It also allows you to do what I like to do, which is scalp around a core position: add to shorts on bounces, take profits on moves to negative TICK, and let a core position ride. Money mgt very important, but what made me money today is patience and confidence in the research. That's the takeaway lesson for the day, IMO.

9:30 AM CT - Watching for bounces at lower TICK peaks as potential opportunities to add to the short position. Stop moved to break even. Having a few more blogger issues; may affect frequency of posting.

9:20 AM CT - I'm playing with the idea that we've seen our highs for the day. Given current volume, I estimate the day's range should be above 1o ES points, so I'm thinking we could go lower here. I'm short a few Russells and will add Spooz on weakness. A break below the pre-announcement lows of ES 1372 would likely bring in added selling.

9:08 AM CT - We've rejected those highs around and what we're seeing is that when the buyers take their turn and drive TICK up, it sets up more selling. TICK has been eroding, but by no means is showing broad based selling. Rather, we're seeing continued elevated volume and large participants in the stock indices selling into rallies. These are not just locals--too much volume sustained for that. It leads me to believe that we've made a higher high as part of a broader topping process, not as a new bull leg. Following the discipline and not chasing the highs paid off. No sustained positions here; just scalp bounces in TICK mode.

8:55 AM CT - Notice how SMH has once again served as a leader and the heaviness in the Russell alerted us to waning strength. TICK remains above zero; let's see what the buyers can muster. Semis continue to lead the downside. TIKI has shown program selling as NQ and SMH have sold off.

8:50 AM CT - My TIKI data show very little or no program selling thus far this AM. Not a market to sell into for anything other than a little scalp. Conversely, given my research, the highly elevated TICK and advances/declines are not tempting me to chase highs. Patience isn't exciting, but it's kept me in the game since the late 1970s. Russells looking heavy; let's keep an eye on that too. If semis and Russells stop making new highs on buying spurts in TICK and ES volume lifting offers, that's when I might start nibbling on the short side.

8:42 AM CT - In Market Profile terms we're trading above value, so we want to see if this attracts business or attracts sellers for a return to the value area. So let's keep an eye on volume. Five min volumes are much above average, suggesting that, indeed, we are seeing new business and the bulk of this is buying interest: lifting offers in ES and high TICK. Note, however, that semiconductors are relatively weak, and they're often a leader. Let's keep an eye there and on NQ. Thanks to Brian Shannon, BTW, for mentioning the AM feature; his Alpha Trends website is one of the best purely educational trading sites out there. Advances lead declines by 1687 issues--very strong. Not a market I'd fade until I see more distinct weakness in TICK, volume in ES at bid, etc.

8:34 AM CT - Reminder: we have crude inventories reported later this AM. We open with positive TICK (sustained readings above +250 show distinct buying interest) and advancing stocks leading declines by 840 issues, as we make an effort to surmount the Monday highs. I don't short the market for sustained positions as long as the TICK distribution is positive. Market Delta shows net volume at offer rather than bid. Odds of sustaining new highs are good as long as this continues.

8:08 AM CT - We continue to see strength; the proportion of ES volume trading at the offer vs. the bid is solidly bullish thus far. We're now at those rally highs, so we'll see if they act as resistance. My strategy is to go with new highs only if momentum is quite good (persistent high NYSE TICK) and if the majority of sectors are participating in the rise. Otherwise, I think we could see selling into those highs. I remain flat. Blogger continues to give some problems this AM, so my updates after the open may be more infrequent than I would ideally like. Back after the open.

7:40 AM CT - Core CPI was in line, CPI a little weaker than expected, housing starts a little better than expected. Net, net? So far, gyrations, but no dramatic directional move in the dollar or interest rates. Dollar a bit firmer vs. Euro, rates a bit higher. What does that tell us? As long as the dollar and rates stay pretty much where they were yesterday, it means that the economic news has not given us any fundamental reason to change our estimates of value. The ES and Russell futures jumped on the news above their afternoon highs, but have settled back somewhat; NQ is weaker and did not advance above the afternoon high. In ES, 1372 represents the low prior to the release; 1371.25 is the overnight low. Both are above the day's average price of 1369. If we stay above that 1372 mark on early selling, I'd expect a run at the highs. A move below 1371.25 would represent fresh selling and would initially target that 1369 price. A large part of my AM preparation is constructing what if scenarios, waiting for buyers and sellers to take their turns in early trade after the open, and then go with the scenario that best fits my research. That research has me leaning to the sell side on buying that dries up and that cannot make new highs, but I can't be too much of a bear if selling cannot push us below yesterday's average price. In these situations, I tend to be cautious: I'd rather wait for things to line up and place one good trade than try to make things happen with multiple trades that have dubious edges. The need to trade is the enemy of the need for profit. Back in a bit.

7:28 AM CT - Lots of Blogger problems this AM; if you don't see regular updates after the open, you'll know why. We're in a narrow range ahead of big numbers shortly: core CPI expected at .2%. I'll post after the release and update the prep for the open. My overall framework is based on the research from the last Weblog entry: weak short-term, up after that. Keep an eye on interest rates and the dollar after the release: if they break new ground, the odds are increased that we'll do the same in stocks. Back shortly.

6 comments:

davidino said...

Hi Doctor,

TRIN and TRINQ remain high reading since the opening which indicate the vol. is heavier on the sell side. Just a reminder.

Best trading,
davidino

James said...

Looks like a good day to trade index futures. I have been staying away frequently in the last two weeks. Thanks for the observations.

Brett Steenbarger, Ph.D. said...

Nice observation. That is particularly helpful when you see that it isn't just one or two large stocks opening weak creating the reading. Thanks for the note--

Brett

Brett Steenbarger, Ph.D. said...

Hi James,

Yes, when we see elevated volume, volatility usually follows--and that makes for good intraday trade.

Brett

BryanW said...

'A lucrative morning with the Doc'. Great trading! Thanks.

Brett Steenbarger, Ph.D. said...

Thanks, Bryan. It turned out to be lucky that I did the session on a day with economic releases, volume, and movement!

Brett