Real Time Market Sentiment And Why It Matters

Just thought I'd share this screen shot with you of the market this morning.  Once again we see the pattern that I had shared earlier in the blog:  selling pressure (amount of volume transacted at the market bid price for ES; middle panel, red bars) versus buying pressure (amount of volume transacted at the market offer price; green bars) and how that selling pressure has been unable to move price to new lows (arrows).  (Data from Sierra Chart).  This has set up on multiple scales (shorter and longer term) and has been a reliable pattern during the recent market volatility.  I'll be discussing this in greater detail during my Traders4ACause presentation with Mike Bellafiore this coming Saturday at 9 AM Eastern.  

The location of where volume is transacted tells us something about real time market sentiment (urgency of buying and selling).  The specific prices where we see strong sentiment tells us something about price levels that traders find important.  In my quant work, I find the correlation between volume at offer vs. bid to be correlated with price change by approximately .41.  That tells us that these are not different versions of the same variable, though they are clearly related.  I've found that, once we take price change out of the sentiment equation, the volume at bid/offer adds predictive value to trading models.  In short, real time sentiment matters because it captures the intentions of larger market participants.

It's yet another example of how looking at market information in new ways can help us achieve fresh insights.  If we only look at the things others look at, we'll see what they see.  That's not a formula for unique and exceptional returns.

Further Reading:

A Pattern Worth Tracking In This Market

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