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.