Friday, February 16th Morning Market Comments

9:47 AM - Volume has really tailed off here. You know, one thing I've always hated is when traders blame their losses on the market. They blame the big traders who "manipulate" the market; they blame news events or lack of news events; they blame low volatility. Energy spent externalizing blame is energy used up without working on yourself. I came into the day with a leaning--that we'd opened lower but would trade back well into the previous day's range--and I was slow to revise that leaning, even as selling picked up in NQ and ER2. That flexible thinking that I've emphasized in the past (and occasionally demonstrated myself!) just wasn't there. Sizing initial positions reasonably and having good stops in place ensured that I didn't get burned by my mistake, but it *was* a mistake nonetheless and is something I will bring to next week's trade as a learning lesson. Sometimes, like yesterday, I develop an early opinion based on a read of the market and really capitalize. But sometimes I can get married to that opinion and don't focus sufficiently on what would tell me I'm wrong (and should make me flip my perspective). That happened for me today. And, yes, I can blame expiration trade and phone calls that interrupted, but if I'm honest with myself, that's not it. The research helps, and knowing market tendencies helps, but you need to also be sensitive to what's happening in the moment. Maintaining that Janus face: one side looking to historical tendencies and the other looking to what's happening *now* is a real psychological challenge. And it's a skill I'll probably always be working on. That, my friends, is the takeaway for today. Have a great long weekend. Wrap up tonite on the Weblog and Best Practices posts this weekend. Thanks for all the recent emails and expressions of support.


9:34 AM - Well, you can see why many traders sit out these expiration days. Let me show you something. Notice what happened to the TICK at 9:15 - 9:22 AM CT. We had several pushes down and selling dried up. A big trader tried to knock ES down around 9:21 AM, but no follow through. That should have been a fine time to enter long. And, yes, we did get a bounce. But then there was no follow through whatsoever. That's why I said I would just scalp trade. I could see the next couple of ticks, but not the next couple of points. But let's not blame all that on the market and expiration; it's time for the Doc to cure himself. Back on that topic in a min.

9:23 AM - Another phone call; just a bit too much distraction, I'm afraid. As a result, I'm done trading for the day. Some very whippy buy and sell programs hitting ER2; very tough to short-term trade. Note slow down in volume recently. Back in a few.

9:14 AM - Volume has remained quite healthy, so we're getting movement. I need to see price hold at higher lows on TICK pullbacks to think about the long side again. I don't have much downside conviction despite the break. My expectations may get the better of me, but I don't see this as a trend day in the making.

9:10 AM - Back after a phone call. My nibbling led to a couple of ticks, but as you can see, there wasn't anything more in the market than that as we broke below the preopen lows and sustained the negative TICK with ER2 leading the way down. No question I was leaning the wrong way in the market and should have been selling those bounces. Now watching to see if we re-enter that AM range vs. trend downward with expansion of volume.

8:54 AM - I am nibbling long on TICK pullbacks that hold above recent lows, but these will be scalp trades for me, so I won't post. Too quick to type them in a timely way. Just wanted to let you know my intentions.

8:50 AM - We may yet get the range trade and I may yet reenter that position, but the weakness in ER2 and NQ turned my risk reward upside down. Better a small loss than a possible significant one.

8:48 AM - Stopped out.

8:44 AM - Bought some ES tight stop.

8:35 AM - Solid volume to open, some related to expiration. Let's see how it goes from here. Leaning to long side if we don't fall out of bed in TICK and ER2.

8:27 AM - I'm showing 1458.75 in ES as the "point of contol" at which we've done the most volume lately, so will use that as my initial estimate of average trading price for this market and then will evaluate the strength and volume participation of moves away from this level for odds of continuation vs. reversal. This, BTW, will be an abbreviated trading (and blogging) session for me, as I have a writing project for my academic department in Syracuse that needs to be completed.

8:21 AM - OK, housing starts came in a bit weak; PPI was in line; and we have Michigan sentiment numbers coming out at 9:00 AM CT, but remember that subscribers to their service do get the data a bit early. We dipped as low as 1456 in ES overnight and now trade just a tad below yesterday's VWAP (pivots and VWAP published daily on the Weblog). With a 3 day weekend coming up and options expiration today, general expectations are for a slow, range bound day. A reader asked me to look into what happens after the Dow has been outperforming the Russell stocks. We've been up a bit more than 1% over the past five days in the Dow (DIA), but actually down over the same period in the Russell 2000 Index (IWM). That has happened 18 times since the start of 2004. The Dow, over the next week, has averaged a gain of .56% (9 up, 9 down), but the Russell has been especially impressive, averaging a gain of 1.11% (13 up, 5 down). In other words, when the Dow has been strong and Russell weak over a five-day period, the next five days in Russell have tended to play catchup. Note also the interesting stats on the Yen vs. the S&P in my latest post on the carry trade. That's definitely a relationship worth watching going forward, IMO. My leaning is to be a buyer if we can see selling dry up above the overnight lows; I also would not want to be chasing highs if we don't get a nice influx of volume. My usual strategy when I anticipate range bound trade is to identify (and keep updating) my estimate of the market's average trading price and fade moves away from that. Back after the open.

8:12 AM CT - And a very good morning to all. I'm getting a very nice response from experienced programmers who are interested in working with experienced traders in testing out trading ideas. As I've mentioned recently, this process can greatly help both parties. If you're a trader with some good ideas and would like to have those tweaked and expanded in a confidential fashion, do send me an email (address is on the TraderFeed home page under the heading "About Me") and I'll use the upcoming long weekend to help connect interested parties. Of course there's no charge or obligation; this is simply an effort to help traders expand skill sets and learn from each other. Ditto the "Open Mic" idea posted recently. If you'd like to co-lead a morning session and blog your ideas, setups, etc., do get in touch! Great way to build some visibility and share with others.