Thursday, March 18, 2010

Catching Sentiment Shifts in the Market Auction

If you click on the chart above, you'll see the increased volume coming into the market--and hitting bids--as we broke below VWAP during the 10:45 AM CT bar (blue arrows above).

The selling pressure in part was a response to rumors hitting the market regarding a possible Fed hike of the discount rate, as I posted to Twitter. Even if you weren't party to the rumor, however, you could see the activity within the Market Delta bar and recognize that new participation was coming into the market on the sell side. That was a nice alert for the ensuing move below the overnight lows.

So much of understanding markets is recognizing what is happening from bar to bar, but also being able to act decisively on the information that sets up within the bar. It's not about chart patterns or mystical numerological sequences; rather, it's all about catching the ebbs and flows of supply and demand in the market auction.