Wednesday, February 28, 2007

Wednesday, February 28th Morning Market Comments

9:53 AM - OK, let's wrap up for the AM session. It was good that I blogged more actively this AM, despite my aching fingers, because it shows how *the same market principles apply* regardless of a market's trend or volatility. I started the day with a dual schema: some research suggested we tend to bounce after big days down, other research suggested follow through weakness after big downside momentum days. My leaning was to go with the trend and the idea of downside weakness to test Tuesday's lows. Well, we got the weakness and ER2 did break the lows, but not ES. Note my post on buying of large caps in the downward market. More of that seemed to be going on, as the TICK lows on the weakness were not extreme. When we broke below the overnight lows in ES and then moved back up into that range, it was a good sign that sellers just couldn't get it done. The TICK distribution gradually shifted upward and it was clear we'd see a test of those overnight highs. We broke the highs, but now note we're heading back into the range. Just as a move back into the range suggested the sellers couldn't get it done, a move back into the range now would indicate that buyers don't have the follow through. That would lead us to expect a move back to the day's average price. Just keep the principles in mind and size your positions so that any move against you in this heightened volatility won't blow you out. Hope this has been helpful. I'll update the market tonight on the Weblog; now I need to rest those fingers!! Have a great day.

9:45 AM - Sweet. Now we have to stay above that range.

9:40 AM - If we can stay in positive TICK on pullbacks, we should get a big breakout move.

9:36 AM - Note we touched the upper end of the overnight range and have pulled back a bit. We actually broke above this range in NQ and ER2 is now close. I would expect a significant move up if we can take out that range; that TICK distribution should tell the story. So far, it and ER2 remain strong.

9:29 AM - I'm getting a ton of emails from confused traders. Sorry I can't answer all in a timely fashion. I'm getting carpal tunnel syndrome as it is... :-) Note the upward shift in the TICK following the drying up of selling mentioned below. That has triggered the recent move.

9:19 AM - Wonderful illustration of the principle I mentioned a few minutes ago. Drying up of selling often precedes an influx of buying. Then, if we get subsequent selling that holds above prior lows on higher TICK lows, that becomes a secondary buying opportunity.

9:13 AM - Overall, we're seeing more volume at the bid than at the offer in ES, but not by much. I have to say that this market is behaving in a resilient way thus far. But drying up selling *often* leads to an influx of buyers--keep an eye on ER2 and TICK if that is to be the case--but we do need to see those buyers to be confident in any market rebound.

9:03 AM - Continued ER2 weakness. Still need to surmount the overnight range highs. That would turn me bullish.

8:54 AM - And we're pretty much back to where we opened! Note the breakout high in the TICK and the fact that, so far, we have not seen a TICK reading below -500. Quite a contrast to yesterday. Looks like this mkt is searching for a bottom--esp. if we get higher TICK lows on successive declines. Remember we have housing at 9:00 CT.

8:52 AM - Hope you can see that: the low of the overnight range is now overhead resistance.

8:50 AM - Note that we broke Tuesday's lows in ER2. Note also how that overnight range high couldn't be breached and led to the breakout below the overnight low. Let's now see if we stay beneath that range and how much volume buyers can sustain.

8:42 AM - The ER2 weakness was a good tell that we weren't going to break above that range this time around. I'll be watching ER2 for continued signs of strength or weakness.

8:40 AM - Note the trading range from 1402 to the 1413 area in the overnight mkt. That's the range to keep an eye on.

8:38 AM - Very high volume; ER2 showing some relative weakness. Keep an eye to see if it leads us down.

8:12 AM CT - Once again, I'll blog on this market only when I see something of real note. I've been getting record traffic on the blog--as have other bloggers--which attests to the heightened interest and uncertainty surrounding this market. My recent posts have tried to put the market decline into some kind of perspective. Bottom line is that we had an afternoon bounce to 1413.25 in ES and then a rise in overnight trading to 1412.50. We need to see the buyers take out those levels with fresh, solid buying volume to take the bull position. Note that we *did* take out the Tuesday afternoon highs in NQ and ER2 during overnight Globex trade, thanks to the bounce in the Shanghai market. So, in those markets, we need to see buyers sustain a move above those overnight highs. That would target the Tuesday average trading price (pivots posted to the Weblog). Failure to hold those highs would target a test of the overnight lows; then the Tuesday lows. We have Chicago PMI at 8:45 AM and new home sales at 9:00 AM. There are concerns regarding economic weakness that could affect this market. Also keep an eye on the Yen. We're getting a bit of a bounce from the recent drop, and it's Yen strength that has helped to hurt this market. Remember: volatility and movement in the overnight session tends to correlate well with volatility in the morning session. Position sizing and stops need to account for that shift. Back after the open.

6 comments:

Humble1 said...

it was evident to me the bears couldn't push ER2 any lower at 10:10 a.m. est typical price action if ya ask me. Confused traders need to get a system that filters out the noise. I back out to the weekly chart or even the monthly.

http://kreslik.com/forums/viewtopic.php?t=452&start=45&sid=8c7c3207e98f7f5a76ccda9105757af9

very enjoyable blog.....refreshing.

LifePost said...

200 amex tick reversal.haven't seen buying support yet er2 794.5, bonds retracing. however trendline underneath.

Brett Steenbarger, Ph.D. said...

Thanks Humble1 for the link and the comment. I think you're right on the money: filtering out the noise is important and, in a high volatility environment, you can have *points* worth of noise, not just ticks.

Brett

Brett Steenbarger, Ph.D. said...

Thanks, LifePost, for your real time observations about the market. Sorry I can't post most of them in time to be of use for readers due to my own trading, blogging, etc.

Brett

Larry Nusbaum said...

Couldn't log on before.
Recall the two trading days following the 1987 crash produced the two biggest DOW days in history....

Brett Steenbarger, Ph.D. said...

Great point, Larry; volatility *does* beget volatility, and not always in the same direction!

Brett