Monday, February 12, 2007

Monday, February 12th Morning Market Comments

9:38 AM - OK, it's been a good AM of trading, my being under the weather notwithstanding. Our research told us we had good odds of taking out the Friday low. When we saw early selling in ER2 and no taking out of the overnight high in ES, that was a nice time to get short for a good trade. When I saw program trades enter on the buy side, esp. in ER2 (which had been leading the downside), I flipped my bias and took a quick long trade for a modest winner. I needed more confirmation that the market was bottoming, and now, as I write, we'll see if that thesis holds up, as we're getting some fresh selling. The takeaway for this AM is that research into historical trading patterns once in a while will turn up a nice edge and form the basis for a worthwhile trade idea. Still, you have to closely monitor trading conditions in real time. Those institutions doing the program trading are among the participants you want to be following. I'm watching for an opportunity to get long, but need to see selling dry up. Have a great rest of your day; wrap up tonite on the Weblog.

9:30 AM - An upside breakout in TICK and continued relative strength in ER2 would cement my idea of having put in a bottom this AM and would have me leaning long the remainder of the day. If we test the AM lows, watch closely for non-confirmations and for volume (expanding or drying up at the bid) in ES to determine if that is part of a bottoming process or the start of a new leg down. Unfortunately, I'm as sick as can be with the flu and will need to wrap up shortly. More in a bit.

9:21 AM - Notice how my entire market perspective shifted when I saw program buying at the 9:10 time area. More on that later.

9:18 AM - Took a quick profit, but ready to reenter long if TICK declines hold at higher price levels. Recall the research: strong market if we don't take out prior day's low. I'm looking to see if we put in a bottom for the day this AM, but I need the market to show that to me.

9:13 AM - Bought a little ES here, but tight stop.

9:10 AM - Program buy in ER2; note shift upward in TICK. That will have me watching TICK declines carefully to see if we are getting a transition from selling to buying.

9:08 AM - Observe that we really haven't seen extreme low TICK readings this AM and declining stocks only lead advancers by about 600 issues. It's a down morning to be sure, but this is lighter selling than we saw on Friday, and the volumes, while elevated to the downside, are more modest than Friday as well. Selling the TICK bounces continues to work as long as those occur at lower price levels with less volume than we see on the declines.

9:02 AM - Note semis holding up relatively well recently.

9:01 AM - Note we've taken out the Friday lows in NQ; very close in ER2. Still gotta lean short.

8:58 AM - Took some profits here; might reenter quickly.

8:46 AM - I'd need to see buying in ER2 and semis and upside TICK breakouts to think about being a buyer; until that happens, I see the TICK bounces as opportunities for shorting as long as we stay below the overnight highs.

8:39 AM - Also note weakness in semiconductors; Dow is relatively strong.

8:37 AM - Note that ER2 has broken below its overnite range. I'm looking for that to lead.

8:35 AM - Real mixed bag early on; greater strength in ES than NQ or ER2. If that continues, I'd expect to see all the averages test those Friday lows. I have an initial short position in ES with a tight stop.

8:19 AM CT - Good morning! Alas, the good Doctor is ailing this AM--a wicked case of flu going around our household--so my comments may be abbreviated this morning. My recent post noted high odds of taking out the previous day's low following a strong momentum decline, but also observed strong market behavior if we cannot take out that low. So let's see if we can track volume at bid/offer and various sectors to handicap the odds of continuing Friday's decline. No major economic reports on tap this AM; interest rates are a bit higher this AM, as is the dollar vs. the Euro. Oil is lower; the DAX is down, but off its lows from earlier in the session. The 1445 area in ES represents short-term overnight resistance; 1441 represents near-term overnight support. A breakout from that range--and whether such a breakout can be sustained--will provide us with information about who is in control: buyers or sellers. Pivot levels for the day have been updated on the Weblog; note also the first Best Practices post on Market Profile. Back after the open.

2 comments:

Marc said...

Hi Brett,

Sorry you got the flu. Hope you feel better soon.

I've been noticing that some of the perma-bulls on the street are hedging their bets lately, citing Friday's selloff as an indicator and talking about the "overdue correction" coming up. In your opinion, does this add to the "wall of worry" and support the market or is this smart money starting to leave. I'm getting mixed signals in all of this.

Get well friend,
Marc

Brett Steenbarger, Ph.D. said...

Hi Marc,

My earlier research suggested that we tend to get bounces after high momentum declines such as Friday, so I've been looking for the possibility of putting in a short-term bottom today. We may indeed see some continued correction, but until the market shows me otherwise, I have to view that in the context of a relatively strong market.

Thanks for your well-wishes. I'm doing the TLC thing for the rest of the day!

Brett