Monday, July 27, 2009

Making the Most of Twitter and the Morning TraderFeed Tweets

A good amount of the information from this blog is provided through Twitter. Following the stream of tweets is free; you can subscribe via RSS or simply track tweets on the site's Twitter page or follow the latest five tweets on this blog's home page under Twitter Trader. Let's take a look at this morning's tweets and make sense of them:

6:50 AM CT - Dollar dn; oil, metals up; rates higher; stks up in Europe, Asia: http://rurl.org/1pda

Here we see that bullish (risk-seeking) themes have been dominating overnight market action. The link to the Bloomberg article provides detail. All things being equal, these themes should provide a bullish tone to U.S. stocks in early trade. Think of the overnight trade as providing a kind of sentiment gauge for traders in the short run. Overnight markets, like day ones, can be slow or busy; range bound or trending. Because large money managers operate globally, sentiment toward asset classes overseas invariably affects how U.S. stocks and bonds trade.

6:54 AM CT - Fri: 2103 20-day highs, 199 lows; Demand 24, Supply 27; Basket: 32 stks uptrend, 2 neutral, 6 dn; 90% SPX stks > 20 dma.

This tweet tells us that new highs continue to swamp new lows among NYSE, NASDAQ, and ASE shares. If we go back to the corresponding tweet for Thursday's market (posted Friday AM), we can see that there were fewer new highs on Friday than Thursday, suggesting a slowing market. We're not seeing any meaningful expansion of stocks making new lows, however, suggesting that the short-term trend is not rolling over.

We also see that both Demand and Supply are quite low, which tells us that upside momentum is waning, but we're also not seeing significant downside momentum. That is typical of range markets. Right away that alerts me to the possibility of continued range trade on Monday--and to the possibility that the market's upmove could be running out of steam.

Finally, we see that, among my basket of stocks, there continues to be a huge plurality trading in uptrends. That indicator caught the recent market advance beautifully; it generally doesn't pay to fade the market for more than a scalp when the great majority of shares are showing solid uptrends. Indeed, as we see, fully 90% of shares are trading above their 20-day moving averages. That is a very strong intermediate-term uptrend.

6:57 AM CT - 75% SPX stks > 200 dma; 68% small caps; 87% NDX stks; 54% XLF stks; 84% XLY stks; 83% XLK stks; 82% XLB stks.

Now we're taking a bigger picture look at index and sector strength. We can see that all indexes (large cap, small cap, NASDAQ) are in bull markets, with more than half of shares trading above their 200-day moving averages. Sectors reflecting economic growth (XLY, XLK) are among the strongest sectors, as is the materials group (which reflects commodity strength). Financial shares are the relative laggard of the major sectors. As long as themes of economic growth and commodity strength dominate, that is supportive of higher stock prices.

7:04 AM CT - $SPY targets: Pivot=97.74; R1=98.61; R2=98.91; R3=99.20; S1=96.86; S2=96.57; S3=96.28. Trading above pivot.

So here are profit targets for SPY for the day's trade. These are levels adjusted for recent market volatility, such that 70% of days (going back to the year 2000) will hit R1 or S1; 50% will hit R2 or S2; and 33% will hit R3 or S3. The pivot is an approximation of Friday's average price. Note that we're trading above the pivot in overnight trade, indicating firmness to the stock market as noted from the first tweet. If I think we're going to fall into range trade, I would look for a retreat back to the pivot level. If I see overnight firmness carrying over into the early morning market, I'll look for a move to R1. These profit targets, together with an understanding of market themes and indicators, are very helpful in framing trade ideas for the day.

Hopefully you can see that a wealth of information can be condensed into the tweets. My goal is to provide a measure of decision support to aid your thinking about the day's trade--not pass along hot tips or subjective impressions. (See this post for details). In many ways, this is every bit as valuable as actual blog posts, as the tweets help traders think about their market thinking, check their assumptions, and plan their ideas for the day.
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4 comments:

Gro said...

Dear Dr Steenbarger,

I particularly like the third one (with % of stocks > 200 MA, by sector) as we can see almost immediately which sectors are lagging or leading the market.
By the way, it's a new indicator isn't it ?

Thanks for all the work you do !

salakazam said...

Dear Dr Steenbarger,

I want to thank you too for all this work and the possibility o follow you in real time. I'm a twitter follower of you.

This is amazing work and I'm shocked about what time you wake up (I read yours first daily twitter around 4:30 am CT).

I hope too you can translate and edit all your books to spanish in near future, cause here (I'm from Spain) only can buy your first, and second is on way (I guess).

Sorry for my english and here you have another faithful follower.

writersblock said...

Dr. Steenbarger,

You continue to blow me away with your generosity. Not only do you provide excellent and useful information, *for free,* but you also show us how to use it. A great education from a great educator, who is teaching us how to catch a fish or two. :-)

M.

Mike Olivera said...

Thanks for the explanation and your tireless effort to educate.

I'm curious about your choice of SPY vs. the S&P futures contract itself (ES or the market hours version ES.D on TradeStation) for your Daily Pivot calculations. If I'm not mistaken you trade the S&P futures contract, no?