Friday, January 19, 2007

Friday, January 19th: Morning Comments

9:58 AM CT - OK; it's off to work as Trader Shrink. The AM illustrated a few important things. First is the importance of flexibility. The odds of taking out yesterday's lows in ES were quite high, and that was my initial leaning. When selling dried up early in the AM with only a modestly negative TICK and not many stocks declining relative to advancers, I entertained the reverse hypothesis: that we were not getting selling and that leaning to the long side was the way to go. The second principle illustrated is the importance of patience. It was a choppy morning session, and it was easy to get scared out of a good position. But as long as the overall dynamics of supply and demand were not shifting, patience was indicated. Finally, you can see how a drying up of selling (today relative to yesterday) often precedes an influx of buying. That's a pattern that sets up intraday as well as on a swing basis. Hope that's helpful; as I write, keep an eye on NQ--showing a bit of short-term relative weakness. Have a great weekend; update tonight on the Weblog.

9:44 AM CT - Finally! We couldn't muster selling and once again the semis (and DAX) led the way before we got a price breakout in NQ and ES. Notice how in this kind of market, you either have to be very short term oriented and take profits quickly or very patient and let a larger move unfold. As long as the dips in the TICK couldn't bring us to new price lows, staying with the long side leaning made sense. But it took real patience, given the chop. Back for a wrap up shortly.

9:31 AM CT - We continue to see very modest selling and recent strength in semis. I continue to lean to the long side as long as we don't see lower TICK lows. DAX has been a good leader this AM.

9:23 AM CT - Well, I've scratched two trades this AM, both on good ideas, but just no follow through on the market moves. We're oscillating around that 1435 area VWAP; advancers lead declines by only 100 or so issues--no real conviction, and that's not my best trading environment. In such a market, you want to identify the day's average trading price as early as possible and fade moves away from that region as buying/selling dry up. I find that you have to exit such positions quickly when profitable; it's very easy for your several ticks of profit to reverse--which is what happened on both my scratched trades. Still no real signs of selling conviction in the TICK, but buying is not sustained either, keeping us in the range.

9:06 AM CT - Lots of cross currents with the sentiment numbers; dollar strength interest rates up. Pullback after the rise, but I'm looking to see if we get lower TICK lows. If not, I'm leaning toward buying. Sellers have not shown conviction thus far.

8:50 AM CT - So far, lack of downside and upside conviction and volume tailing off, leading me to suspect rangebound day. Still anticipating test of lows unless I see evidence of meaningful buying.

8:41 AM CT - DAX strong, but I want to see ER2 buying before I'll commit long. If ER2 stays below its preopen range, I'm selling for test of lows.

8:24 AM CT - Forgot to mention; DAX has been strengthening through much of pre-opening trade and that's led to a bit of a bid now in the US indices. Something I'm watching.

8:19 AM CT - Not a big news day; Michigan sentiment numbers at 9 AM CT and that's it. We have options expiration today, so some chop and rangebound trade would not be unusual. We're trading at the lower end of yesterday's distribution, so I would not be surprised to take out yesterday's lows, especially if we continue to see underperformance from ER2 and NQ. My full market wrapup, strategy, and pivots for today are on the Weblog; I'd expect a test of the 1429 S1 level on ES if we start out with below average NYSE TICK readings. Overnight resistance is 1434; Thursday VWAP is 1435; inability to sustain selling in the AM should bring us to those levels, which would be consistent with rangebound trade. I'll be keeping an eye on early volume to handicap the odds of such rangebound action. The 1431 region is also overnight support. If you get some free time, check out the post on trader personality; some interesting findings from a recent pilot research study. Back after the open.


Anonymous said...

Just cannot tell you how much I have learned from your blog since you have started writing about your strategies of trading the eminis. It has made more sense than anything I have learned in thousands of hour (with considerable pain injected from time to time by Mr. Market) over the past 7 years.
In effect, your approach is simple enough:
--a true market like that provided by the S&P eminis will move
--make minute by minute mental models (structure the thinking)on directional %s with the use of VWAPs, pivots, fibs, etc, and volume (helped by MarketDelta)
So simple it is elegant. If one has it in ones blood to daytrade, why mess with all of the maschinations of trying to find the right charts, stocks to day trade, etc etc and on and on ad infinitum, just to then get consistently beat up by a system rigged to benefit those trading on a market maker's screen (who gets to see incoming and filled orders as well as all of the stops for his stock right there on his screen)! I know, it has to be this way, as they have to be there to make the least for now, anyway.
I am curious about how you feel about the following. We have all been burned so many times playing these games with MMs, specialists, manipulators (see Cara yesterday on KRY), etc. Is the emini market about as true of a market as exists (except maybe the forex market because of its size) that we can participate in--on a level field-- or do you think that it can be manipulated as well. I know that sometimes there can be moves in the futures markets in the middle of the night, but we do not hold these things overnight anyway. Really would love to hear your opinion on this and would consider it with great respect. Thanks again so much for all of your efforts.

Brett Steenbarger, Ph.D. said...

Hi Flincing,

Thanks for the comment and interest. My hope is that people can use the info from the morning sessions to integrate into their own trading decisions and styles to make the trading truly their own. While the eminis are a deep market, they certainly can be affected by the computerized trade close to the market, which loads the book up, pulls resting orders to generate movement, etc. FX is worse (cash), given the fragmented nature of the market (multiple bank platforms) and lack of transparency in the order book. If, however, you have researched ideas that put the odds in your favor, it's a lot easier to ride out the noise from the battling market makers. Best of luck--