Tuesday, April 07, 2009

Reading a Market Reversal

Just wanted to show a snapshot of my screen at the time I decided we were due for a move up in the ES futures. It's a Market Delta screen, with the five-minute footprint chart showing (within each bar) volume at the bid vs. volume at the offer. The green/red histogram columns at the bottom of the chart display the *net* volume at bid vs offer for each time period.

Notice how we see rising bottoms in the red histogram as the morning progresses. Price is moving lower, but on less net selling pressure. This same reduced selling pressure was evident in the NYSE TICK.

From the vertical histogram at the right side of the page, we can see how volume was bunched up between 814 and 815 in the ES contract, as I noted in my Twitter post. A breakout from that constricted range was bound to be significant, as traders leaning the wrong way would have to cover. In the case of an upside move, that suggested that we could move above the open and test the lower end of Monday's trading range as initial upside targets.

Combine the above observations with the fact that we had sectors, such as XLF, bucking the weakness from the open and you can see where a good reversal move came from. It's putting all these components into a coherent market picture that delivers the good trade.

(Note: The red line is something I'm playing with: VWAP calculated from the start of the prior day at 15:30 PM CT; I was toying with that as a minimum target region as well).


Arjuna said...

Very nice ! Almost poetic the way you describe this. Wish there were free tools that could accomplish this. Doc, could you publish a list of the tools you use? And any "suitable" free replacements that come close if any!
thanks a ton!

TTmarun said...

great heads up/read Doc. i saw it realtime too..

thx for the info on 14-15 area as high vol and to watch a push in either direction that atracts large player, wasn't clear till today how yu used that info... now i do & know what yu mean on "putting the odds in yur favor".. great info, thx again JT

OKL said...

I hear you Doc, I saw the same thing, but w/o market profile/footprint of course.

Caught a 6pt move.

Brian said...

Great post, nice chart.

On your last note on VWAP. Would seem to make more sense to start your VWAP at 3:30CST when the "new" session starts if you are thinking of having a 24 hour VWAP. Or at the very least, start it when the asian markets open.

Midnight seems kind of arbitrary. Did you have a reason for picking midnight? And which time zone?

Thanks for all you post on twitter. Great help to me and many others!

SSK said...

Hello Brett, nice observation.Once price broke above the VWAP around 10:16 eastern(my vwap starts at 9:30 eastern), the 5 min moving avg of the tick also diverged, (it was moving up as the body's of the candles and their ranges were closing and extending higher during the time when the price of the ES was consolidating at the vwap from 9:35-10:10 eastern) making the vwap support around the 814-815 area right before the break out upward. Thanks for your great work! Best, SSK

S Benard said...

Does anyone know if this has been programmed for Tradestation? The VWAP I have doesn't look ANYTHING like this!

Brett Steenbarger, Ph.D. said...

Hi Arjuna,

I have very few tools. Just e-Signal and Market Delta, along with the data I compile and calculate in Excel.