Wednesday, February 14, 2007

Wednesday, February 14th Morning Market Comments

10:27 AM - Until we can attract sellers, you have to lean long on pullbacks. That's what happened with that last trade. Once ER2 started holding its pullback lows and TICK couldn't get much below zero, I concluded that sellers were drying up and expected another run at the highs. The distribution of the TICK is quite positive, and it doesn't make sense to fight that. A psychology takeaway for today is to not make regret part of your trading repertoire. I missed the big upmove on the economic news because I was busy managing to get out of a small ER2 short position. I wasn't aligned with the trend and missed the move. I didn't get angry or frustrated and didn't chase highs. I waited for the pullback and stabilization and found an entry. I'm not as profitable as I would have been had I been long from the open, but neither did I succumb to revenge trading/frustration/regret. There will always be another day and another trade. Keep losses reasonable and your opportunity will come. Just a couple of good opportunities per trading day can make a career; the important thing is to capitalize on those, not to regret the moves not traded. Have a great rest of the day; wrap up tonite on the Weblog.

10:15 AM - Wasn't seeing big influx of volume as before and ER2 still isn't looking great, so I decided to take the sure thing. Back for wrap up shortly.

10:14 AM - Took profits here.

10:04 AM - Still consolidating after the big rise. As long as we don't see an influx of sellers in TICK and ER2, my inclination is to hang with a long bias for a test of highs.

9:52 AM - We continue to sell down toward that zero TICK area on reduced volume; so far more a pullback of buyers than an influx of sellers, which is why I'm willing to stick with the initial long position.

9:40 AM - Long some ES here, but again, tight stop on an initial position.

9:33 AM - It would not at all surprise me to see new highs in ES as we move forward; I'd lean toward using such upmoves to unload longs rather than chase highs if we continue to see relative weakness in ER2.

9:29 AM - Watching ER2 carefully for non-confirmations of any move toward highs in the other indices.

9:23 AM - TICK remains positive, so I am not selling, but I want to see what buyers have left before we're off to new highs across the board. Note some selling in semiconductors. We're either going to break big to the upside here or fall back into the longer-term trading range. I'm sitting back handicapping that.

9:15 AM - With us knocking at the door of highs in ES and ER2, I'm looking to see if the higher prices *sustain* this buying interest. If we started getting TICK upmoves that fail to make new price highs, I'd be cautious chasing the upside and might even try a scalp trade short. I'm not going to post anything I do in that scalping vein; just can't post it quickly enough.

9:09 AM - Extremely high volume and high TICK; those TICK pullbacks are the buying areas as long as this persists.

9:06 AM - As long as we see the positive TICK distribution and relative strength in ER2 and NQ, I would not be short this market.

9:05 AM - Big drop in rates, drop in dollar vs. Euro, rally in stocks. Don't think the market is expecting Fed tightening!

9:04 AM - Note we are knocking on the door of new highs in ES. Let's see how we react to that level.

9:02 AM - Clear upside breakout in TICK and averages vs. their AM ranges; need to stay above those ranges to be buying on TICK pullbacks.

9:01 AM - Had to scramble to get out when ER2 sold but other indices stayed firm. One problem posting my trades is that I can't execute and blog quick enough to stay very timely.

8:59 AM - Took quick profit

8:55 AM - Narrow range ahead of the testimony, cross currents, but no real direction. Not adding to my position at this time. Need more evidence of selling in TICK.

8:46 AM - Short some ER2 on TICK bounce; tight stop.

8:40 AM - Note we are well back inside Tuesday range in ER2.

8:36 AM - Seeing a bit of early buying and relative strength in NQ; not much in ER2. Mixed bag thus far, with the tilt toward buyers in the TICK. Volume is healthy so far.

8:26 AM - 1449 is the low end of the overnight range; 1451.50 is the upper end. I like to track how we trade early in the day relative to that range to see how much fresh buying or selling is entering the market early. In that sense, I treat the overnight/preopen range just like any range and look for breakout vs. "mean reversion" moves based on volume and its distribution.

8:18 AM CT - And a very good Valentine's morning to you! The snow has moved eastward and soon we'll all be digging ourselves out of winter's fury--even my former stomping grounds in Upstate New York, which (in some areas) got 12 *feet* of snow recently. Homeowners were frantically shoveling off their *rooftops* to avoid the pressure of the gathering snow. No such snowing under yesterday, as stocks started strong and, despite lagging NQ and ER2 through much of the day, still registered healthy gains. We closed near the day's highs and now are trading yet higher, awaiting the 9:00 AM CT Congressional testimony of Fed Chair Bernanke. It would not surprise me to see some slow, rangebound trade ahead of that testimony. It would also surprise me to see testimony that differs significantly from recent Fed minutes and statements. We're getting a bit of dollar weakness vs. Euro, and interest rates dipped on the retail sales news, which was weaker than expected at unchanged. 9:00 AM CT we have business inventories and 9:30 we have crude oil inventory data. Normal expectations for a strong day are to at least test the R1 pivot level (pivots are posted daily to the Weblog) in follow through trade. Failure to do so would target the Tuesday pivot/VWAP. Do check out the Best Practice post this AM: there's a link to an article by Henry Carstens that is a phenomenal introduction to developing and testing trading ideas. I immediately talked with Henry by phone after reading his article and told him he had outdone himself. Thanks to everyone so far who has submitted a Best Practice! Back after the open.


yinTrader said...

Hi Brett

Happy Valentine to you and your family; hope you are not snowed under - literally ! You need to take a dose of brandy with your hot drinks to kill the flu virus.

We're getting a bit of dollar weakness vs. Euro, and interest rates dipped on the retail sales news, which was weaker than expected at unchanged. - Unquote

I have been waiting to sell USD and buy Euro, to switch products with an offshore bank. Last night (Spore time) there was a setup and this morning, I sold my USD to buy Euro, just in time before Euro keeps moving up.

Timing and checking daily on Economic Calendar first thing in the morning gives me an edge to sell USD and buy Euro today.

heywally said...

I really appreciate your posting this stuff Brett, like you mentioned though, kind of impossible in these conditions. The Bernanke effect is on; market expecting him to not be as positive? I'm thinking longer term right now ...

Brett Steenbarger, Ph.D. said...

Great point, Yin; checking that economic calendar and making myself aware of expectations has become a staple of my morning routine. Thanks!


Brett Steenbarger, Ph.D. said...

Hi HeyWally,

Thanks for the note. Very tough to trade prior to a big report or news; lots of cross-currents. Also tough to handicap how markets are likely to respond to reports that are outside of expectations. Some traders can do very well by trading such events; I've never been an event trader. I like to wait for the initial reaction to pass and then find the opportunity.


Lord Tedders said...


I'm always amazed at how well you trade hectic mornings like this one (and blog!). I was short ER prior to the release as well but didn't get out as quickly (small loss). Way to go for handling that trade so well and not being frustrated about missing the initial outcome of the news.


Brett Steenbarger, Ph.D. said...

Thanks, Tedders, I really had to scramble to get out of the Russell position in time. It went down and NQ and ES were catching a bid and I knew it was time to get out. Too bad I didn't also flip the trade and buy some! I appreciate your note. Blogging as I trade keeps me focused, and it keeps me following my rules! I'm probably more sensitive to looking like an idiot than to actually losing money! :-)