Friday, September 11, 2009

Midday Briefing for September 11th: Identifying Range Trade

Shortly after opening trade this morning, we saw price oscillation around the market open around 1040.50 in the Dec. ES futures (red horizontal line above). A number of worthwhile tells told us that, although we were trading at bull highs, we were in a range market, including fewer than 1000 issues separating NYSE advancing and declining stocks, more stocks in my basket trading beneath their opening prices than above (as noted in the Twitter update; follow here); poor participation among intermarket themes (including drop in oil prices and rise in USD vs. euro), and no stock sectors showing significant trending readings (as noted in Henry Carstens' tweet).

Another important clue was that ES volume transacted at the market bid exceeded that at the offer after the first half hour of trade. In an uptrending market, we should have seen volume at the offer continue to outpace that at bid. Finally, we saw a balanced NYSE TICK thorough much of the morning, with relatively few significant buying pressure readings.

After breaking below the overnight range, we've now bounced back into that range with advancing stocks relatively balanced with decliners. Making the early identification of range dynamics can set up worthwhile "fade" trades, as we tend to move toward the volume-weighted average price after attempts to probe value above and below.