Tuesday, November 28, 2006

Tuesday Observations



We got the bounce that the recent research suggested, which made for a nice trading opportunity following the data release at 9:00 AM CT. If you click the above chart, you'll be able to see the steep volume on that rise into the 9:50 AM bar. We got a selling squall after that and then one more push toward highs. Note that this push came on lower volume, with far fewer contracts lifting offers. (Remember, within each bar, the first number is the volume transacted at the bid price; the second number is the volume transacted at the offer. When we get more volume at the offer, the bar turns green). Quite simply, the buyers ran out of steam and we have since retraced some of the gains, with the TICK hitting a very oversold -915.

At this point, we're looking to form a trading range between today's highs and lows, and I'd be looking for evidence of selling drying up (prices holding near their lows where the TICK hit its negative extreme, and higher TICK lows on subsequent selling) prior to getting back in on the long side. Specifically, I'd be looking to buy pullbacks that stay above the 1384.25 lows on evidence of reduced selling pressure.

What you're looking for is the ebb and flow of volume from the market and the distribution of this volume among buyers and sellers. Reading those shifts is essential to short-term trading.

More on today's market on the Weblog tonight.

8 comments:

voodster said...

Brett,

can you explain what exactly you mean by "Diminished Volume" at the 2nd high? Do you mean the 1st high had dark green bars whereas the 2nd high was light green? I am trying to determin if you are looking at the colors or the sizes of the bid and ask.

Brett Steenbarger, Ph.D. said...

Hi,

Sorry for the confusion. I was referring to the total volume for the 20 minute bar, not the distribution of the volume between bid and offer (red/green). In the 9:50 AM bar, we traded over 120,000 contracts; at the second high, volume was less than half that amount.

Brett

Tax Shelter said...

Brett,

I was reading your 11/26 blog on mutual fund purchases and redemptions. I agree that it has a very interesting correlation with II survey data. I would like to try to reproduce your results, and I am wondering if you could let me know where I can find the data on mutual fund purchases and redemptions?

Thanks!

Brett Steenbarger, Ph.D. said...

Hi Tax Shelter,

Thanks for your note. My data on the mutual fund purchases and redemptions came from Pinnacle Data (www.pinnacledata.com), which is one of my sources for historical data.

Brett

Anonymous said...

Hello

What trading platform produces your NOV 28 bid/offer volume market profile looking thing.

thanks

sorry may have duped this message

voodster said...

Brett,

Today has started strong and reversed. Would today's volume analysis show a similar thing? Perhaps you might like to show another example?

Brett Steenbarger, Ph.D. said...

Hi Kev,

The chart comes from Market Delta (www.marketdelta.com). They do a free trial if you're interested.

Brett

Brett Steenbarger, Ph.D. said...

Hi Voodster,

I will try to post charts if I'm available during the day while the market is trading. I think a "real time" post might be most helpful. The problem is that I'm often working with traders and not available to post on my blog during the day. Thanks for the interest. I'll see what I can do shortly--

Brett