9:48 AM - OK, let's wrap up for this AM. Again we see some buying as selling hits the Yen, but I need to see that buying sustained in ER2. The most important thing in these markets is to recognize how fast they are and know when you're idea is wrong and when to get out. This AM, my strategy was the selling of bounces as long as we made lower TICK highs and lows and lower price lows. Once TICK broke to the upside, however, and buying of Yen stopped, it was important to note the market's shift. That enabled a trader, at the very least, to step aside before the real rally hit with the Yen's decline. As I'm writing, we may be seeing another shift, in which buying fails to take the averages higher and the Yen catches another bid. Noticing these shifts is crucial to finding opportunity, but is especially important to risk control. I'll have another post later this AM; wrap up tonight on the Weblog. Have a great rest of the trading day!
9:30 AM - Again, I'm keeping an eye on ER2 and the pattern of higher TICK lows on pullbacks. If that continues, I'd expect renewed buying. Breaks to lower TICK lows would invalidate that.
9:20 AM - Keep an eye on ER2 to see if it can sustain highs. It is not confirming the recent ES high and Yen is catching a bid.
9:19 AM - Again, note the Yen retreat and the stock strength.
9:05 AM - If you look at the TICK, the Yen, and the stock index futures, you can see how buying slowed in the Yen, the futures bounced, the TICK broke to a high, the Yen came off its highs, buying increased along with the TICK in the index futures, and then the whole process accelerated as the Yen sold off. Note also the huge drop in bonds (rise in rates) as all this occurred. It is imperative to follow these intermarket relationships second by second to trade this market short-term IMO.
9:00 AM - Clearly that dynamic has continued; as the Yen pulled back, we saw signficant lifting of offers in ES.
8:58 AM - The most important thing here is to distinguish short covering rallies from true initiation of new positions by institutions when they see price get down to a level they deem as value. The short covering will tend to occur on lower TICK values and/or TICK spikes that are not sustained. Note that we did see a TICK breakout to the upside here and a solid bounce. This really accelerated when the Yen started to come off its highs. It's a very skittish market and there is a lot of short-covering when the Yen shows a waning of buying. Let's see if that short covering is sustained into true buying.
8:50 AM - The TICK distribution is clearly negative; we have much more selling at bid than lifting of offers in ES; declines lead advances by over 2000 issues; and the Yen is hovering near its day's highs. As long as those dynamics hold, my leaning is to fade bounces.
8:45 AM - I'm watching for possible short covering rallies if the Yen can sustain a retreat from its highs. Shorting Russell on Yen strength has been a great trade, taking advantage of risk aversion.
8:38 AM - Well, what can I say? The market upticked at the open, but the Yen resumed its rise, and if you were quick enough to see that, you did well fading the stock strength. We've broken the two-day lows, declining stocks are swamping advancers, and interest rates have again plunged on the flight to quality. We have a nice bounce now that has taken ES back toward those 2 day lows; let's see if they now act as resistance.
8:13 AM - I'll add observations to these comments if I see major developments in the early AM, but today I start back on my work with traders and other projects, so my morning comments will be limited. Keep an eye out for a very important post on how to identify market bottoms and then a follow-up post about whether or not we've made a bottom in this market. Hate to spoil the ending for everyone, but the implication of the research is that we have yet to meet the criteria for a market bottom. That certainly seems to be the case this AM, as we are closely following the Yen/dollar relationship. Once the Yen started a steep rise around 6 AM CT, the U.S. stock index futures fell out of bed. That is one of the key relationships to be watching today. Note that we have taken out the lows of the past two days in NQ and ER2--not the kind of leadership the bulls want to be seeing. If buying can't take us above the 1398.25 recent premarket high, fading strength for a test of the two-day lows in ES is a natural trade idea. Most important of all, remember that principle: overnight volatility is correlated with price movement the following morning. We should be rockin' and rollin' in early trade. That means lots of sharp moves and an emphasis on setting stops and sizing positions accordingly. Note the research on the Weblog; institutional buying has not yet entered this market. If the institutions aren't finding value at these lower price levels, how are we going to put in a bottom? More on that in my next post. Also check out Brandon's excellent post on managing account growth. I'll be back after the open. We have construction spending numbers and ISM at 9:00 AM CT. Frankly, however, it's that rising Yen that threatening the carry trade and leading to a stock exodus.