Monday, February 26th Morning Market Comments

9:41 AM - Seeing a little relative strength in the semis; let's see if that continues. As long as we get more volume in ES hitting bids than offers, it's tough to pull off any turnaround in that index. Notice how the short-term trader breaks down the market into swings up and down and continuously compares the strength of the swings relative to one another to gauge underlying demand and supply. That's where the tools such as TICK and volume at bid and offer come in handy. We saw strength in the overnight market, but then buying soon after the open could not move us above the premarket highs and we saw selling in NQ and ER2, as well as semis. That set us up for a move back into the value area of Friday's trade.

Hope these morning sessions have sensitized you to some short-term patterns in the market. I will hold occasional morning sessions during March as the schedule allows. Thanks for your interest, and have a great day!

9:34 AM - Well, no sooner did I post that than we saw a bounce in TICK on low volume and then strong renewed selling. From the standpoint of execution, it makes sense to wait for those bounces to enter in the direction of the trend, not to get excited and sell weakness. I find it helpful to watch not only the net buying vs selling in the Market Delta bars, but also the high and low Delta values for the bar to see if we're getting stronger or weaker *within the bar period*. This very much helps for execution, as it keeps you out of buying a market in which price may be bouncing, but buying volume is tepid. Back in a bit.

9:28 AM - When you see selling in the TICK and volume hitting bids in ES but the indices can't make new price lows, it's telling you that the selling sentiment is still there, but that sentiment is having a harder time moving price. In other words, the market is becoming less efficient to the downside. Such shifts in efficiency are common around market turns, so I usually don't chase weakness if price is having a hard time budging.

9:12 AM - When you have downthrusts like that, what you want to do is wait for the buyers to take their turn. You'll see that by bounces in the NYSE TICK and by buying in the Market Delta (green). The important thing is to compare the volume on the bounces to the volume on the prior decline and to compare the level of the TICK on the bounces to the prior TICK levels. If the bounces are occurring at lower volume levels, with less buying at the offer, and at lower TICK levels, those become opportunities to ride the market for another move down. Conversely, if you get solid volume on the bounces and new TICK highs, that's when you look for a short-term reversal in the market. More on that in a bit.

8:55 AM - You can see how the ER2 and NQ weakness were great tells for the short-term breakdown in ES, which has now attracted increased selling volume. Nice example of how looking at the more volatile sectors/indices can alert you to what is likely to happen in the broader market.

8:49 AM - Seeing some profit taking in ER2 and NQ, as well as semis, despite positive TICK. We're getting more ES volume at offer than bid, but again not impressively so. I'd need to see greater TICK weakness before being aggressive on the downside, but neither is the buying follow through impressive so far.

8:40 AM CT - Watching some early relative weakness in semiconductors and NQ. Worth keeping an eye on. Volume in ES is decent, not extreme; with more volume transacted at offer than bid, but not by as much as you might have thought given the overnite strength.

8:17 AM CT - And a very good morning to you! I'm wrapping up my morning session blogging today, and today will be a very light day of blogging at that. Lots of new projects going on here, and those will be taking my time and attention. One of those projects is described in my latest post; some promising research for swing traders. See also my latest entry in the Trader Performance section of my personal site. Another project is learning online video production. Eventually I'll start posting some instructional videos that I think will be more informative in a how-to way than the morning session posts. I also talked with my editor at Wiley and we're investigating the possibility of putting together a combination book/video that focuses on some of the trading ideas from the blog and the morning sessions. And, finally, as we move into March and weather improves, I'll be back on the road and working with traders at different firms. It's all good...just a lot of balls to juggle at once! I know things are hectic when my email inbox reads over 900!

We have some good overnight buying in both Europe and in the U.S. futures. Interest rates are down, and we're back into the prior trading range in the equity indices. Note that Friday we broke the prior day's lows in ES, but not in ER2 and only barely in NQ. I'm looking at the possibility of this representing an intermediate-term bottom that will take us to new price highs. So my leaning is to be buying on selling that dries up. I had the right general idea on Friday, but jumped the gun on the buying. We need to see evidence of sellers being unable to push the market lower before committing to the long side. I'll be watching the semiconductors (which have been strong lately) and ER2 for signs of strength vs. reversal. NQ and ER2 are pretty close to their previous week's highs; keep an eye on those levels and whether or not they attract volume. Pivot targets are posted to the Weblog. Note that we are trading pretty much at the average level of the prior trading range at present. No economic releases today, but quite a few coming up this week. Let's see if trading slows ahead of those numbers. Back after the open; I will be posting only when I see something of significance.