Monday, January 22, 2007

Monday, January 22nd Morning Comments

9:33 AM CT - OK, I'm just going to sit around and wait for another good entry point to the downside. My longer-term opinion remains to the downside given the steady decline in market momentum and participation we've seen in recent days, as outlined in the Weblog. That led me to hold a short position overnight. It went against me in preopening trade, but that didn't change the larger picture. As it became clear early in the AM that we weren't sustaining buying, it made sense to entertain the hypothesis that we weren't going to take out Friday's highs. That led to the strategy of selling bounces in the TICK with a profit target of Friday's lows. The next downside target is S2 at 1428.75; I need to see buying drying up in ER2 before pursuing that target. We're getting a few divergences here that lead me to keep my powder dry. Hope this has been helpful. Again, I'll be out Tuesday and Wednesday, but will update the Weblog tonite and will post to TraderFeed daily (but not the morning updates those two days). Have a great day!

9:26 AM CT - I'm not chasing lows here; I'm out for the time being. We're getting a little buying in the semis, NQ, and ER2. May be temporary, but it's a yellow flag.

9:20 AM CT - Just a point of clarification. When the market gives me close to 6 points in 30 minutes time, I look at the odds that we'll go straight down even further. Those odds aren't good. Hence I take what the market gives me and look to re-enter on bounces higher. That's the difference between holding a core position and sitting through those counter trend moves and trading on a short-term, intraday basis.

9:15 AM CT - OK, we hit my first profit target, so I took some off the table. Now I wait to see if buyers can come in around Friday's lows. Until we see selling dry up and some evidence of buyers coming in, I continue to lean to the sell side.

9:05 AM CT - Both volume and selling have picked up, and we've taken out Friday's lows in NQ. I continue with my initial scenario and until the market proves differently I continue to see TICK bounces as short-term selling opportunities.

8:55 AM CT - Neither the Dow TICK (TIKI) or NYSE TICK is showing particular strength, which means that we're just not getting traders stepping up to the plate and lifting offers ahead of LEI. Volume remains subdued, and we continue to see relative weakness in small caps. Let's see if the numbers change the market's dynamics. So far, I've been anticipating an inability to take out Friday's highs and that's worked well. If volume does not pick up, however, it could be one of those slow, range bound days where it makes sense to take smaller profits when you have them. My downside target if we cannot get the pickup in buying is Friday's lows in ES.

8:40 AM CT - Just a little heads up. I'll be out of town Tuesday and Wednesday, working with traders at a hedge fund. I'll be updating TraderFeed during that time, but won't be doing the morning comments. I'll have a Weblog update tonight and then the next one after that on Wednesday evening. We're seeing modest volume--no significant institutional participation--in very early trade leading up to LEI, with relative weakness early on in ER2 and no extremes of buying or selling in the TICK to this pt. More volume is being transacted at the market bid than ask in ES, but again this is modest volume. So far consistent with a range bound market. Still watching closely to see if we can take out Friday's highs when we get buying. If not, I continue to lean to the sell side.

8:15 AM - We have a little firmness in the stock index futures prior to the open, with Leading Economic Indicators scheduled for 9 AM CT. The expectations are for some strength in LEI. Indeed, firmness in the economy has led to a recent rise in interest rates and taken away all expectations for a near-term easing by the Fed. As I will post shortly, these upturns in interest rates are associated with subnormal returns in stocks over a several-week horizon. I enter the day with a small initial core short position, given the loss of upside strength and momentum mentioned in the Weblog. The Weblog also has the day's pivot levels; I'll be watching carefully if we can hold above Friday's highs in all three major equity indices. If not, I'd expect us to take out Friday's lows. More after the open.

6 comments:

Anonymous said...

why is it a yellow flag?

Brett Steenbarger, Ph.D. said...

Hi Jeff,

The odds of a move continuing are reduced if you have many sectors not participating in the move. The more volatile sectors, such as semiconductors and ER2, often lead ES.

Brett

Scott said...

Brett,

In response to your comment "Hope this has been helpful", my response is "yes!" For you to ratchet up your work load for us with these daily trading updates is very gracious of you. Your work has so helped my process that, odds are, I’d have not made it this far without you. As an independent trader, to be given the opportunity to peek over your shoulder during the trading day provides excellent learning opportunities. Plus it brings you closer to us and, as a virtual trading mentor, you simply cannot be beat. Much thanks Brett.
Scott

Brett Steenbarger, Ph.D. said...

Thanks for your generous feedback, Scott. It's much appreciated. I would love to see other bloggers do what I'm doing and post real time market commentary/ideas/thoughts, so that traders could benefit from many different models and ways of thinking about trading. Judging from the morning traffic on my site, there certainly seems to be an interest in those trading how-to's!

Brett

Anonymous said...

I concur with Scott. To win at trading you must be able to hold on to winning trades, which requires a plan. Brett has shown us how a plan can be made and executed. I have read the books on trading eminis, and I have tried to do it alongside popular trading rooms to no avail. It was always a zero sum game, so I quit. But there was never an approach shown that Brett has been so good to relate. It makes sense and I might give it another try after paper trading with Market Delta screens for a while. I truly am grateful for Brett's efforts, and am looking forward to learning more!

Brett Steenbarger, Ph.D. said...

Hi Flincing,

Thanks for the note. I do think that having explicit profit targets and stops help traders stick with winners and ride out noise.

Brett