Thursday, January 25, 2007

Thursday, January 25th Morning Comments

9:54 AM - OK, time to get cracking on my work with traders. I'll post comments tomorrow AM and update the Weblog tonite. I'm continuing to anticipate a range mode for the day. Takeaway for today is this: transacting at the bid vs offer, which is what I'm tracking with the NYSE TICK, Dow TICK, Market Delta, etc, is a very short-term measure of trader sentiment. When we don't see buying sentiment following a nice up day, it makes sense to think about a transition to range bound trade and a reversion to the prior day's average prices. An absence of buyers (sellers) often precedes an influx of sellers (buyers), but it pays to wait for the latter, pick price levels, and take the high percentage trades. Have a great day!

9:48 AM - So far we're getting short covering following those surges of selling in TICK, but not sustained buying. The balance of trading has been skewed with much more volume at the bid than offer in ES, and that has been a fine guide through the day's session. Until that changes, it's premature to call a bottom and look for that trading range. It pays to let the market play its hand, find your levels, and play when the odds are in your favor.

9:44 AM - Notice the very poor follow through to the initial surge in the TICK, followed by renewed selling, esp in ES, taking us to the second VWAP level. ER2 showing a bit of relative strength here; I'm watching that closely. But as before, I need to see higher lows in the TICK to be a buyer, and I need to see lower highs in the TICK and the averages in sync to resume the short side.

9:32 AM - Financial stocks haven't done well this AM; note that we're at multi week highs in interest rates on the ten-year. Not a great environment in general for stocks. You can see, though, why I got out of my position and was anticipating a surge in the TICK; up markets usually transition to trading ranges, they don't turn into bear markets. If we start making higher lows in the TICK, I'd look to be a buyer along the way.

9:29 AM - We need to see an upward shift in the distribution of the NYSE TICK if we're going to put in a bottom and start forming a trading range. Hasn't happened yet, but I'm on the lookout.

9:22 AM - Lots of good lessons here. If a nice trade idea doesn't go your way, it's telling you something about the market. I reversed my position, was able to identify which index was the weakest, and that permitted a nice trade to our target prices. The key is keeping those losers small and then sticking with your price targets.

9:12 AM - I'm leaning to the sell side here for a test of those average price levels, simply because the market is not showing signs of buying at this juncture. I'm short a little here, but I don't see a lot of market conviction, so I play it close to the vest.

9:04 AM - Quick stop out on that trade. I'll often use early small trades to help feel out a market, and the thing we're seeing so far here is an absence of buyers. Note how we have not yet seen an elevated TICK reading, although we also haven't seen dramatic negative numbers. We continue to see more volume at bid than offer in ES and that needs to change to test the overnight and prior day's highs. Otherwise, we have that pivot level and VWAP as obvious downside targets.

9:00 AM - Bought a little ES here. Need to see ER2 hold am lows.

8:50 AM - NQ and semiconductors show relative strength; ER2 continues weaker; volume continues modest--when sectors move different ways and volume is mediocre, I look for range bound action, not big trending moves.

8:41 AM CT - Some relative weakness in ER2 possibly emerging; I'm keeping an eye on that.

8:37 AM CT - So far we're seeing some early modest consolidation of yesterday's gains with moderate volume, no sustained early selling in the TICK, but declines leading advances by about 150 issues on the NYSE. Semiconductors, which underperformed yesterday, are showing a bit of early life. No distinct trend in the indices so far; we've had more volume transacted at the bid vs. offer in ES by a decent margin, but again volume is quite moderate. No big institutional participation at this juncture.

7:57 AM CT - Good morning! I'll post a few times early this AM on the market's follow through to yesterday's solid gains. The Weblog notes pivot levels and expectations for the day. No great reaction to the 7:30 AM unemployment numbers; at 9:00 AM CT we'll get housing starts. We're seeing recent firmness in both oil prices and U.S. interest rates; that, along with the divergences noted in the Weblog, has me questioning the sustainability of this breakout. We saw 1296 stocks make new 20-day highs on Wednesday against only 413 new 20-day lows, but that is less than the new highs registered back on the 16th. We're also seeing the DAX come off its highs, and I'm noting the poor participation of the semiconductors in yesterday's rally. All in all, that has me looking to test Wednesday's highs, but it would not surprise me to see us test the Wednesday pivot level and VWAP as part of starting a trading range. Indeed, if I see early buying that can't sustain a move above Wednesday highs, my leaning will be to fade that move for a return toward that Wednesday average price. Conversely, early selling that holds above the average price would have me looking to test the Wednesday highs and R1 level. Back after the open or if some inspiration happens to strike. If you're bored before the open and want to take a personality test and read about the results, check out my most recent posts.

2 comments:

Anonymous said...

"I'll often use early small trades to help feel out a market, and the thing we're seeing so far here is an absence of buyers."

How do you feel out a market with a small trade? Do you mean you are testing your own intuition without taking a huge risk?

(Unless your trades are so huge that the market takes notice of them. (wink))

Thanks,
Marc

Brett Steenbarger, Ph.D. said...

Hi Marc,

I will look for a good setup with a half-sized position and see how the market moves from that point forward. If, say, the market has hit a price level a few times and has bounced off each time and then moves up a couple of ticks, I might try to buy at the bid price for a quick rally. If we break below the price it had bounced off of, that tells me fresh selling is still coming into the market. So, yes, I'm testing my idea without big risk, knowing that I can add to my position if it goes my way with expanded volume. Thanks for the opportunity to clarify--

Brett