Monday, May 11, 2009

Range Days and Rotation: A Few Observations About the Day's Trade

Here's a quick snapshot of how we've been trading so far today. Note the oscillation around the day's volume-weighted average price (VWAP), with the oscillations dampening as volume has tailed off.

It's important to recognize that range days are typically rotational days, in which sectors may move vis a vis each other, but are not moving directionally in unison. Thus, we're seeing relative strength among last week's weak tech stocks and NASDAQ; we're seeing relative weakness among last week's strong banks and energy issues.

We need to see a move that engages the vast majority of sectors to reject VWAP as an estimate of value and bring market equilibrium to higher or lower price levels. Breakout moves in TICK can often identify such moves, as they highlight stocks moving in one direction.


animal spirits said...

Dr. Brett,

This is my first post, so I'd like to first thank you for this blog and your books. These have been valuable resources and inspiration to me. Parameters to identify range vs. trending market is one of the most valuable things I am learning at this time. I used to get caught "leaning the wrong way" on tight range days, but now, using $TICK, VWAP, R and S levels, I am able to achieve fair profit on these tight range days. Best regards, and please keep up the good work.

Brett Steenbarger, Ph.D. said...

Thanks for the feedback, Animal Spirits. I look forward to staying in touch--