Wednesday January 31st Morning Comments

9:57 AM - Interest rates continue to fall on the rally in the 10-year; dollar still weak against Euro. Russell has moved back into the Tuesday range; other averages hovering closer to their highs. Semiconductors have also backed off. I'd expect a test of the large cap highs as long as the dips in the TICK stay modest. With that, I'm off to work--my other work. Have a great rest of your day; update tonite on the Weblog.

9:50 AM - We're knocking on the door of Tuesday highs in the major indices; failure to sustain buying above those highs would normally target the day's average price as a downside target. Still no substantive selling in the TICK, but Russells looking tired here.

9:45 AM - Dollar continuing to fall vs. Euro.

9:43 AM - Persistent buying has taken ES above the Tuesday highs, but has also lifted ER2 significantly. The bias is to the upside with the shift mentioned below, but I'm also watching for evidence of a pullback to the Tuesday range to return us to the range bound mode. One of the things I researched some years back was breakout in the TICK from a previous TICK range. That's what we had this AM. My research back then, which needs to be updated, suggested near-term intraday price strength following such breakouts. Note how we never had extreme negative TICK readings in the AM and then broke to new TICK highs. The Russell often benefits from such moves.

9:30 AM - An interesting idea would be to buy the Russells on a TICK pullback as long as the TICK doesn't break down to new lows for the day and the Russells stay above their recent lows. The TICK distribution has shown an upward shift reflecting buying in the wake of those intermarket dynamics mentioned just below.

9:25 AM - Don't know if you caught that. Bonds rallied, dollar fell hard against Euro, and the NASDAQs caught a bid and rallied. Some very interesting intermarket cross currents going on, and it's not coming from locals. The dollar drop is pretty significant.

9:19 AM - You can see how ES is continuing to trade within its overnight range, even as we continue to see relative weakness in ER2, semis, and emerging markets (EEM). I wouldn't be a buyer until I saw buying interest come into the small caps and semis, with more robust TICK levels. Nor am I inclined to sell ES, which, like the DAX, has held up quite well given the weakness in Asia. Longer term, I have trouble finding reasons to be a buyer if interest rates are going to stay firm and if those emerging markets continue to lag.

9:09 AM - Interest rates have fallen back a bit here. Volume continues moderate. As long as we can trade 15,000 contracts or so every five min in ES, there should be some movement for the short-term trader. It's when we get below 10K per five min period that things get deadly slow and I stop trading. I've found keeping those volume levels by my side to be helpful. Let's me know when it's worth playing, when it's not. The main thing is whether or not volume is above avg or not for that particular time of day. When well below avg, not worth trading.

9:00 AM - OK, what happened is that I saw that the market wasn't moving meaningfully higher on the TICK bounce and that two of the three averages (NQ and ER2) had already broken below their overnight lows and the semis were still not catching a bid. So I shorted ES for a very short trade back to the overnight lows, but took a while to get filled at my level. I don't want to hold positions for long if we get a slowing trade ahead of the Fed. So, if I can get five ticks, that's fine. Targets have to be based on opportunity and volume equals opportunity. I may well not trade again this AM.

8:56 AM - Back flat for now. I'll explain in a moment.

8:47 AM - I'm a little short on that TICK bounce, but more to feel out the mkt than anything else.

8:39 AM - There's no way I'm a buyer in the face of weakness in the semis and small caps; the Russell is well back into yesterday's range, even as DAX and ES hold up better. I may be on the sidelines for a while. No real buying interest in the TICK thus far. We're back at the VWAP in ES. Selling picking up.

8:34 AM - Early impression is of relative weakness in semiconductors and small caps; large caps holding up better, with declines leading advances by almost 600 issues. Volume quite moderate ahead of all the news.

8:21 AM CT - Good morning. GDP came in a bit stronger than expected and we're seeing a bump up in interest rates, with the 10 year coming in at close to 4.9% as I write. Stocks are selling a bit lower in the futures markets, although the report caused no important selling. The dollar's a bit stronger vs. the Euro on the news. At 8:45 AM CT, we have Chicago PMI; at 9 AM, we get a report on construction spending; and at 1:15 PM CT, we get the Fed announcement. Bottom line is that I expect traders to be reining themselves in prior to these reports, so I don't expect a busy or particularly directional trade in the AM unless a number is well out of line. Pivots for today are on the Weblog; my recent post examines what happens after flat weeks such as we've just had. My main reaction to this AM is surprise that the weakness in Asia--particularly China, which plunged over 6%--has not filtered down more to the U.S. futures. This leads me to believe there's a bid beneath this market and, if early selling holds above the Tuesday pivot, we should be testing the Tuesday highs and R1 level. I'd be more cautious about buying if selling pushes us below overnight support at 1429.25.