Tuesday, February 27, 2007

Tuesday, February 27th Morning Market Comments

9:36 AM - So far, note that the selling has come on higher TICK lows and the major indices have held their AM lows. If the TICK continues its positive shift, I'd expect us to take out the opening prices in ES. Note the upward shift of the TICK distribution thus far. As long as we get TICK pullbacks at higher lows and price stays above prior lows, I'll look to buy. Breakdown of those prior lows or breakdown in TICK would alter that, however. Hope that's helpful. Have a great remainder of your trading day.

9:14 AM - Note that we're hovering around the opening prices in ER2 and NQ. If you look at the TICK, really the selling is not as dramatic as the numbers would lead you to believe. A lot of the market's weakness was baked into the open. I'm focusing on how strong or weak the market is *since the open*. Not versus yesterday's close. That will tell us if we have underlying followthrough of supply or buyers laying in wait.

9:00 AM - Short covering rallies in declining markets can be quite sharp. Note we've seen some bargain hunting in NQ and ER2, which had been leading the downside. Seeing if we can put in a bottom this AM and get a real mother of all short coverings!

8:50 AM - I'm showing an equity put/call ratio of 1.5. That's as high as I can recall in a long time. Trin is close to 3.0. Declines lead advancers by well over 2000 issues. Lots and lots of bearishness.

8:43 AM - Keep an eye on EEM as a proxy for those emerging markets. Especially watch for strength.

8:27 AM - It's really funny and perhaps a sentiment indicator: there are a record number of visitors on the TraderFeed site right now. I'd like to think it's part of that flight to quality... :-)
More likely, people seek information when there is uncertainty...

8:24 AM - Thanks also to a reader and fine trader who points out that we're seeing multi-week highs in the Yen which, if you recall my earlier post, is associated with subnormal returns due to the dampening of the carry trade. Well, I don't think too many traders want to be carrying BRICs right now; we see a huge rally in the rates markets with the flight to quality. Look for a TraderFeed post coming up: what happens after we have large market declines and a flight to quality in bills/bonds.

8:13 AM CT - Well, I wasn't planning on continuing the comments so immediately, but it looks like a wild and wooly start to the morning, so I thought I'd add a little perspective. Bottom line is that we had a drop of over 9% in the Shanghai market overnight. That has spilled over to world markets, so look for a continued flight to safety (buying fixed income) and a retreat from emerging markets (big drop in EEM in premarket). As the Barchart newsletter reported earlier this AM, "The vice chairman of China's parliament said on Feb 6 that the government said that China's stock market was showing signs of a "bubble" and said that only 30% of the companies on the Shanghai Stock Exchange are "good to invest in by Western standards." I guess when you say those kinds of things about your own market, eventually people will listen! Does this mean the start of a bear market, or is this a correction that shakes out weak bulls? I try to address this in my latest post. We are trading some 15 ES points below yesterday's volume weighted average price. For two days, as noted in the Weblog, we've been in a short-term downtrend. This simply accelerates the momentum of the downtrend. In general, such momentum tends to persist in the short run. So I would caution against attempts to bottom pick this AM. The most important consideration, however, is that overnight range is correlated with volatility the next AM. We should see considerable market volume and movement this morning--much different from the slow, range bound, low VIX trade of recent weeks. Be very careful re: your placement of stops and your position sizing. The market is likely to move more than you are accustomed. If I notice anything major, I'll post observations. Have a good start to your morning trade!

5 comments:

Inept Trader said...

It's probably too late to research this Brett, but judging by my eye, I don't think the market has gapped this far down in a good while.

Brett Steenbarger, Ph.D. said...

Hi,

I will post findings on large gap openings down with flight to quality later on. Thanks--

Brett

LifePost said...

Intraday Option volume is interesting to look at today as well. It looks like calls are being bought on dips when looking at IWM options. VIX is bottoming right now. Pretty interesting day to trade if your brave enough.

LifePost said...

Crude oil is extremely volatile right now, I'm wondering if there is any reverse correlation between it and bonds. I've seen reverse correlations between CL and SMH to some degree. Looks like money is going out of equities and into the one commodity (CL) that is driven by fear during crazy times.

Marc said...

I was expecting a drop and I see it's happening. I had a Deja Vu moment late last week when my real estate broker friend (who's made a lot of money in the last couple years) told me over lunch that he's been reading the Motley Fool and is going to put all his money into the market.

Kinda like the Joseph Kennedy/shoeshine boy story of the late 1920s. Kinda.

Marc