Thursday, February 15th Morning Market Comments

10:34 AM - One quick note: I see that the Teach Me Futures site is hosting a presentation on business planning in trading from Joseph Mertes of Alexander Trading. That is after the market close today; registration required. John Conolly of Teach Me Futures does a fine job of attracting good Webinar presenters.

9:48 AM - OK, volume tailing off and my sense is that we'll oscillate around a mean trading price for the day. The only way I know to trade that kind of market is to wait for moves away from that mean and then wait for buying or selling to dry up and then enter in the direction back toward that mean for a short-term trade. I continue to be unimpressed with the price action in ER2. Takeaway lesson for the day is to try to figure out the type of day you're in as early as possible and adjust your trading accordingly. When I saw low volume early on, I went with the assumption of a range day and was willing to fade short term market moves for quick trades. By not allowing the trading of the last two days to color my view of what's happening today, I didn't try playing for big breakout moves, and that--so far--has paid off. If we get a downward shift in the distribution of the TICK, I'd be looking for TICK bounces to fade ER2, with the idea that we've put in a top for the day in that index. Hope that's been helpful; wrap up tonite on the Weblog. Have a great rest of your day!

9:39 AM - What happened there was that a buy program hit the ER2 stocks and you could see TICK jump as a result. I waited for that to pass, got the usual pullback that results when the buy programs aren't across the board and persistent, and then did my best to scratch the trade. I may reenter that short ER2 position on bounces that fail to take out the recent high.

9:36 AM - Out for small loss.

9:29 AM - Volume has slowed down, and I expect movement to do the same going forward.

9:23 AM - I'm short some Russells

9:18 AM - For these morning posts, folks, the specific trades I make are less important than the reasoning behind them. I'm trying to illustrate how to think about trading on a short-term basis by knowing price levels, volume patterns, and how correlated markets behave. It's not the only way to trade and, since Jack Schwager isn't banging my door down for another edition of Market Wizards, we can conclude it's not the *best* way to trade. But it has brought me consistent profitability ever since leaving my full-time position with the prop firm and just might supplement what you're already doing. But the idea is to take away what makes sense to you from these posts and then integrate into what you do best. The idea is not to try to imitate me, trade like me, etc. At some point, I'll use these sessions to try to illustrate longer-term trade setups and strategies (swing trades).

9:14 AM - Volume did turn up on the rise, but not anywhere near like yesterday. My leaning is to fade highs, esp if we see heaviness in ER2. In fact, my leaning is to short ER2 if continued bounces in TICK can't take that index higher. If volume tails off, I'd be just taking small profits on those positions. No major selling pressure in the TICK, but advances only slightly ahead of declines for the day and ES volume at offer vs. bid relatively even. Not how a trend day sets up.

9:04 AM - What happened with that trade is that I saw large traders stop selling ES as we hit that average trading price from Wed. Rates were down and we're still in a bull mode, so my idea was to go with that direction. Had we seen NQ and ER2 fall out of bed, I surely wouldn't have been long ES. In retrospect I could have held that position longer for a test of the Wed. highs, but was not impressed with volume and decided to take the quick profit. NQ and SMH looking strong here.

9:00 AM - Took profits again.

8:52 AM - Bought some ES; very tight stop.

8:46 AM - Volume continues quite modest; that also leads me to take smaller profits, anticipating smaller price moves and ranges.

8:44 AM - That was simply my old standby: if you get buying early and can't promptly test the overnight highs, look for a reversion back to the previous day's VWAP/pivot. We hit VWAP, I waited a bit to see if it would go further, decided to take what I got.

8:42 AM - Took profits.

8:37 AM - Short some ES here

8:35 AM - Pretty flat open, with subnormal volume. I'm on alert for a range day.

8:28 AM - Note that rates continue to tumble, and the dollar continues to weaken. That was supportive of stocks yesterday.

8:22 AM - And, oh yes, we have continued testimony from our Fed chief starting at 9:00 AM CT. That lit things up yesterday; no change in testimony expected, but some nuances might emerge from the different questions posed.

8:20 AM - OK, initial claims came in a bit high, but no major market impact. Yen is up across the board; I'll be posting on this topic tomorrow. With yesterday a strong day (up in price, expansion of 20-day new highs), I'd be looking to test yesterday's high in ES and the R1 level. I'm also aware, however, that we saw some selling in the broad market (esp. ER2) during the afternoon, which may well create some divergences at new price highs. I'll be watching for that, and especially watching to see if that selling spills over to the large caps to help us transition to a range bound trading mode. Remember: as VIX declines, we tend to see narrower trading ranges. I need ES to stay above 1456.25 (and preferably above the overnight lows) to sustain a bullish posture. Pivot targets once again are posted to the Weblog. Failure of buyers to take out the Wednesday high would target the day's pivot/VWAP as initial targets. Philly Fed is out at 11:00 AM. Here's a great article on that economic indicator from Briefing.com. Back after the open.

8:13 AM CT - And another good morning to you. Markets have held up reasonably well overnight after yesterday's jump on Fed testimony, lower rates, and a weaker dollar. We also dipped in option volatility; see my post this AM on that topic. If you've emailed me lately re: best practices, connecting with programmers/experienced traders, etc., I may not have yet gotten back to you. The inbox has been bulging lately, and I'm doing my best to keep up! I hope to get caught up by the end of the day today. Don't let that stop you from emailing me, however, if you're an experienced, successful trader who would like to expand your edge by connecting with an experienced programmer, or if you're an experienced programmer who would like to collaborate (and learn from) an experienced, successful trader. My email address is on the TraderFeed home page under the "About Me" heading. If you haven't read the best practice post on testing trade ideas, I encourage you to check it out; it's a source of edge that is easier to pursue than many people believe. Back with market overview shortly.