Going into the Fed announcement, we can see that the S&P 500 (ES) futures moved below their overnight lows, but held support above yesterday's lows, despite a sharp selloff in oil and commodity-related stocks. We've since bounced above VWAP, creating a range day ahead of the announcement. The U.S. dollar is stronger against the euro and the Aussie dollar (though off its highs); oil remains significantly lower on the day; gold is down, but off its lows. Ten-year Treasury yields are down on the day. With the extended range going into the announcement, traders will be looking for breakout moves. If selling holds above the morning lows, I would expect new highs in ES; failure to make new day highs in ES would target the day's lows as an initial target. I'll be updating via Twitter following the announcement to gauge buying and selling interest. .
We can see that the S&P e-mini (ES) futures have ground higher in overnight trade, having held above the 1062 support area identified yesterday. We're also trading above the day's volume-weighted average price (VWAP; red line) thus far this morning. Ability to hold above that level will target the bull market highs and set up a potential breakout trade with respect to the recent multiday range. A move below VWAP would continue us in the multiday range. We're seeing some USD strength vs. Aussie dollar, and gold and oil are trading off a bit. I'll be watching those intermarket themes closely, as--thus far--they are not particularly supportive of higher stock prices.
We've generally seen positive market performance going into FOMC announcements, as noted by the excellent Quantifiable Edges blog. I'll be watching the cumulative NYSE TICK over the course of the morning and posting via Twitter to see if that bullish bias follows through today. .
* Thanks to readers who sent in trade setup ideas in response to the recent post. I will be featuring those setups in posts beginning later today;
* Increasingly, I find myself entering trades late in the afternoon and holding into the next trading day. I can adjust for overnight price risk by sizing positions properly; I can't adjust for missing opportunities that are occurring prior to the U.S. open;
* The best psychological strategy I have found for not getting caught up in choppy markets is simply to not watch those markets. If I have my profit target set, my stop loss point identified, and my strategy for adding to/scaling out of the position fixed, then I find that watching the market tick by tick adds little value;
* I start my trading day by asking: where is the market likely to move today? The volatility-adjusted price targets that I publish each morning before the open via Twitter give me a road map for that. (Follow the tweets here). Everything else is gauging market strength/weakness and volatility to handicap the odds of touching one of those targets and finding good entry spots to optimize risk/reward.
* At one firm, I'm working in a "pod" with a large trader and an analyst. The pod is supported by a programmer who creates proprietary tools for market timing. There are three sets of eyes on the markets; three sets of eyes on the trader. A lot more bandwidth for processing what's happening; a lot more checks and balances to aid discipline. I suspect we'll be seeing more of that at large proprietary trading firms.
* A number of recent posts have featured tools that capture market data in a unique way for quick processing. As with carpentry or vehicle repair, I find that having good tools makes a big difference in performance. Traders need to minimize their overhead, but I'm hard pressed to think of successful traders I've worked with who haven't invested in good tools to support decision-making. .
* MARKET THEMES FROM TUESDAY: Stocks traded with their multiday range on Tuesday, ahead of Wednesday afternoon's scheduled Fed announcement. Intermarket themes were largely bullish, with a weak U.S. dollar and strong gold and oil prices. The ES futures held support in the morning at the 1062 area and stayed above that level in the afternoon, with net buying sentiment in NYSE TICK. Should we hold above the afternoon lows overnight, I would expect a run to test the bull highs. New 20-day highs on Tuesday were 1681; lows were 166, so no meaningful deterioration there. Advancing stocks led decliners handily on the day, returning the advance/decline line specific to S&P 500 stocks within a short distance of its bull high. Market wrap here.
* OVERSEAS/OVERNIGHT NUMBERS: 1:45 AM CT - France, consumer consumption of mfg. goods; 6:50 PM CT - Japan, merchandise trade balances. Earnings scheduled for Wednesday can be found here.
Here's a futures heat map from the Barchart.com site that I've mentioned in past posts (bottom chart). It offers a quick glance at a variety of asset classes, so that traders can see themes that may be moving markets. Today was a range day in stocks, but note that energy futures and metals were strong, giving a bullish tone to the day.
One nice feature of the map is that you can click on any of the squares to see how instruments within each asset class performed. The top chart, for instance, shows how currency futures behaved, highlighting the U.S. dollar as a loser on the day.
For a trader wanting a quick but detailed update of intermarket themes, this is an excellent tool. .
Many of the best daytrading opportunities, I find, come from situations in which a large number of traders are caught leaning the wrong way in a market. (See this post for an example). They are leaning the wrong way both in terms of direction and timing: they're selling, for instance, but not able to push prices meaningfully lower. They're also selling at multiple periods, expecting markets to trend, but never getting the breakout move. The combination of these dynamics create ranges in which the eventual breakout move is amplified by traders needing to cover positions once it's clear they've been leaning the wrong way.
If, as trading lore and research has it, 80% of traders lose money, might it be worthwhile to isolate what they do wrong and figure out how to profit from it? That's my latest project. .
Here we can see the clear range trade in the S&P e-mini (ES) futures going into tomorrow's scheduled Fed announcement. We held support in the 1062 area per the morning briefing and have been consolidating in the 1067-1070 resistance area. I expect an upside breakout taking out that resistance as long as we can sustain buying pressure (positive cumulative TICK) above that price level. A move below 1062 would constitute fresh selling pressure and target the lows of the multiday range. Thus far, weakness in the U.S. dollar and firmness in gold prices are supporting higher stock prices. I will be tracking market developments via Twitter, particularly tomorrow as we approach the Fed announcement. .
Early morning reversals can be particular difficult for traders. Here we see a pullback in the ES futures (top chart, first blue arrow), followed by a bounce and a second pullback (second blue arrow). The second pullback saw new lows in the NQ futures, but not many of the S&P 500 sectors, including technology, healthcare, financial, and energy. Moreover, the NYSE TICK held at higher lows on the second pullback (bottom chart, first and second arrows) and the TICK never got to the significant -800 level of selling pressure. The non-confirmations and modest level of TICK suggested a lack of follow through to the downside, which was a useful tell for short-term traders. .
As we can see from the chart of the S&P e-mini (ES) futures above, we are running into important resistance in the upper 1060s after having taken out the highs from the past two trading sessions in overnight trade. We're seeing higher oil prices, higher 10-year Treasury yields, higher gold prices, and a much weaker U.S. dollar. In short, the intermarket themes are showing risk appetite and that looks to be supporting stocks. That having been said, we have a Fed announcement tomorrow afternoon, so keep an eye on intraday volumes tailing off, as traders may take bets off the table--keeping markets slow and rangy-- ahead of the event.
Failure to sustain a move above overnight highs would support around 1062 and again around 1057/1058. On any move to new bull highs, I'd be watching closely for confirmations and non-confirmations, to gauge the possibility of a false breakout to the upside. As I mentioned earlier, I believe we've seen a momentum peak for this bull leg last week; we tend to see price peaks on weaker strength and momentum thereafter. So far, the market action is consistent with that expectation.
The purpose of this post is to help traders get the most from TraderFeed. Going forward, there will be five major components of the blog:
1) Twitter posts - A great deal of brief but important information is sent out via Twitter. You can follow the last five tweets on the blog page under "Twitter Trader" or subscribe to the Twitter stream free of charge via RSS. Among the tweets daily are links to articles on market-relevant themes; daily pivot point and price targets for the S&P 500 Index (SPY); market indicator readings on strength, momentum, and trend; upcoming economic reports; and intraday updates regarding how the market is trading.
2) Morning Briefing - This is a standard post that illustrates how markets are trading going into the trading day; emerging intermarket themes; important price levels; and assessments of market strength and weakness.
3) Midday Briefing - This is a look at the market during the trading day to see how the structure of the day has been unfolding; update ranges and key price levels; and evaluate strength, weakness, intermarket activity, and key confirmations and non-confirmations of market moves.
4) Evening Briefing - This post wraps up the market day; summarizes major themes from the day; highlights economic reports scheduled overseas; and links readings that are important to recent market and economic activity.
5) Trading Psychology Posts - These are blog posts that emphasize the psychology of markets, the psychology of traders, and/or the psychology of the process of learning/mastering markets.
In addition, I feature Sector Updates and Indicator Updates at the end of each week to take a larger picture view of how markets are trading, what is strong and weak, and whether markets are gaining or losing strength and momentum.
Not all features will be relevant to all traders, but my hope is that the Twitter and blog posts will give traders a few decision support tools and opportunities for staying on top of themselves and staying on top of markets. .
* MARKET THEMES FROM MONDAY: Stocks moved to multiday lows in pre-opening trading, but held those overnight lows in early trade before rallying back into the multiday range. The NASDAQ 100 Index was particularly strong, registering fresh bull market highs. Overall, however, declining stocks outnumbered advancers by nearly 1000 issues. We did not see a meaningful expansion of 20-day lows, however; that would be a bearish signal I would take seriously. Gold closed off its lows; oil was weak through the day; the U.S. dollar fell from its morning peaks; and 10-year Treasury yields finished at the upper end of their multiday range. It would not surprise me to see continued range trade ahead of Wednesday's Fed announcement. Market wrap here.
* OVERSEAS/OVERNIGHT NUMBERS: 3:00 AM CT - Italy, unemployment; 7:30 AM CT - Canada, retail sales. Earnings reports due out Tuesday can be found here.
A number of proprietary trading groups are recognizing the value of "groupness" and extending their work to independent traders. Trading RM in Chicago, for example, is offering a free trial of a service that enables traders to receive the actual trades placed by their prop traders, including stock and options trades. As their post points out, the idea is not to simply mimic their trades, but rather to use the information to highlight stocks showing trading promise. By tracking whether the traders are placing more long or short trades, subscribers gain an immediate measure of sentiment for the broad market.
Perhaps less obvious, such openness helps traders as well. Once all your trades become public, you become desensitized to losing. All your worst trades, as well as your best ones, are out there for the world to see. That goes a long way toward helping traders develop a thick skin during periods of slump. It's also harder for traders to lose discipline and "go on tilt" when they know that they're being tracked by colleagues within the firm and outside! .
Here we can see the market breakout this morning and the subsequent range trade on low volume, as we've stayed above the day's volume-weighted average price. We can see from the histogram at right that we are forming a "double distribution" day, with a volume bulge around 1054/1055 and another around 1059/1060. Both selling and buying pressure have been restrained as the day has progressed, reflecting reduced volume ahead of the Fed meeting. Oil remains weak; the U.S. dollar is off its highs of the day. Ten-year Treasury rates have moved higher along with stocks. As long as we remain above the 1056 level representing support from late last week, I'm treating this as a multi-day range market. .
Notice how volume expanded on the move to new highs, validating the breakout move. The volume was skewed toward the offer vs. bid side and came into the market above VWAP and above the volume bulge at the 1054/1055 level. That tells us that the market is accepting value higher, and it suggests that shorts had to cover when they could not push price below their overnight lows. .
We see range dynamics on the day timeframe when NYSE TICK (top chart) oscillates around the zero level, with the moving average (blue line) near zero. We also see range dynamics when the day's volume-weighted average price (VWAP; red line, bottom chart) is relatively flat and price oscillates around that price.
Sentiment on the day has leaned toward the sell side both in cumulative TICK and cumulative Delta, and we've been building volume at lower price levels relative to Friday. Recognizing the range dynamics of the trade, however, has been helpful in not chasing either strength or weakness on the day. .
9:18 AM CT - I added the top chart to show how selling pressure (volume at bid exceeding at offer) has dominated in the morning, which has been true for the NYSE TICK as well. As a result, we're building volume and accepting value below the red VWAP line. Still we're having difficulty getting stocks to move below their overnight lows, despite a strong dollar and weak commodities. Should the dollar roll back over, I would expect a short-covering rally in stocks. A break below the overnight lows would represent fresh selling and set us up for a potential trend day to the downside. Volume building around ES 1054; so far we're oscillating around that area.
We've seen a solid bounce in the U.S. dollar overnight, and that has accompanied weakness in stocks, a drop in oil and gold, and a bounce in 10-year Treasury prices. The ES futures (chart above) broke below recent support around 1056, and most recently that price has acted as resistance. Note how we're building volume in the 1053/1054 area; if we reject that area to the upside with good volume, that would place us solidly back into the multiday range. Conversely, inability to stay above the 1056 area would continue the overnight downtrend. It would not surprise me to see continued short-covering in the dollar; if so, that would continue to pressure stock prices. I'll be updating this morning with tweets and posts.
Note: For background on reading the Market Delta chart above, see this post. .
Last week's indicator review found consistent strength across the indicators and a bullish bias among intermarket themes. That bias continued this past week, as we saw further weakness in the U.S. dollar and strength in gold and oil. Sectors continued their upward trend, and the advance-decline lines for the major indexes hit fresh bull highs.
As we can see from the top chart of the Cumulative Demand/Supply Index, momentum has expanded during the past week and we're now in moderately overbought territory. New 65-day highs minus lows (bottom chart) hit a bull market high this past week, suggesting that participation in the rally has been strong.
Given the recent slowdown in the market rise--two consecutive daily readings of weak momentum--and the market's overbought status, it would not be unusual to see consolidation of recent strong gains. Momentum peaks (peaks in number of stocks making new highs, peaks in cumulative Demand/Supply) tend to precede price peaks, so I would not assume that near-term weakness is the beginning of a bear turn. Rather, we may see a market go into a topping mode for a while, bringing swings both to the upside and downside and eventual new price highs.
There are many ways of assessing whether U.S. equity traders and investors are behaving in risk-seeking vs. risk avoiding ways. One is to evaluate the relative performance of growth oriented sectors vs. more defensive ones (such as XLY:XLP). Another is to look at the relative performance of smaller, growth-oriented issues (such as IWM) vs. established large cap blue chips (SPY). If investors are bullish toward risk, they will tend to buy the most aggressive, growth-oriented names; if they are bearish about the economy, they will gravitate toward the safest, most defensive blue chips.
Another way to assess the risk appetite of equity investors is to examine the relative performance of the unweighted S&P 500 Index (RSP) vs. its capitalization-weighted standard (SPY). If traders are bullish on the economy and risk seeking, they will tend to prefer the smallest components of the S&P 500 Index, and RSP should outperform SPY. Conversely, if traders are bearish on the economy and risk averse, they will tend to stick to the safest of the blue chips and SPY should outperform RSP.
We can see from the chart above that the relative performance of RSP:SPY topped in 2007, ahead of the broad stock market. It also bottomed in late 2008, ahead of the March, 2009 stock market bottom. Notice that the relative performance of RSP:SPY has been hitting new highs in recent trading, suggesting that bullish risk appetite is alive and well in the stock market. I would not expect significant market declines as long as that is the case. .
* MARKET THEMES FROM FRIDAY: We are in a several day trading range in the ES futures, beginning with the afternoon of the 16th and continuing through Friday. There is significant resistance above 1067; support is in the 1056 area. We're heading into a Fed meeting week, so trade could remain rangebound as we approach the announcement. Ten-year Treasury yields are also rangebound, hovering roughly between 3.4% and 3.5%. Gold has fallen off its highs, and oil has been in a several day range, along with the U.S. dollar. I will be tracking these intermarket themes closely early in the week to see if we see further consolidation of the risk rally.
* OVERSEAS/OVERNIGHT NUMBERS: No major economic reports scheduled. It's also a light earnings day; LEN scheduled to report.
Several readers have asked for explanations of the Market Delta charts that I post during the week. Details about the "footprint charts" can be found on the Market Delta site, but this post should bring newcomers up to speed.
If you click on the chart above, you'll see that we're looking at 60-minute bars from the preopening trade of 9/18/09. I've blown up a segment of the chart for easier viewing and annotation.
Within the bars, you'll see two numbers. The first is the number of contracts traded at that time and price when that price was the market bid price. The second is the number of contracts traded at that time and price when the price was the market offer price. When the volume at the offer exceeds that at the bid, the color inside the bar is coded green. That shows that buyers are more aggressive on average: willing to pay up for the offer price. When the volume at the bid exceeds that at the offer, the color inside the bar is coded red. That indicates that sellers are more aggressive: willing to take the lower, bid price to get out of the market.
We can look at shifts from green to red (and vice versa) both within bars (to show buyers or sellers becoming more or less aggressive as we move up or down and to see if total volume--the total traded at bid and offer--is expanding as we move) and across bars (to show if buying or selling pressure is waning or heightening over time).
The red line on the chart represents the market's volume-weighted average price (VWAP), which is the average price traded since that day's session began, weighted by the volume of transactions at each price. VWAP thus is more affected by trading during regular trading hours (when volume is highest) than during overnight hours. During trend days, we stay consistently above or below VWAP; during range days, we tend to oscillate around VWAP. False breakout moves will reverse toward VWAP; sustained breakouts will reject VWAP on solid volume and not return to that average price.
The histogram at the bottom of the chart sums the volume transacted at the offer minus the volume transacted at the bid for each bar period (in this case, 60 minutes). If more volume is transacted at the offer, that difference is coded in green and is displayed above the horizontal axis. If more volume is transacted at the bid for that bar period, the difference is coded in red and is displayed below the horizontal axis. Seeing how we shift buying and selling sentiment from bar to bar gives helpful clues as to whether buying or selling pressure is waning or strengthening over time.
Finally, the histogram at the right of the chart displays the total volume transacted at each market price. This gives us a distribution display similar to Market Profile. From that display, we can see where the majority of volume has been transacted. That area represents the market's estimate of value; weak volume moves above or below that area will tend to fall back into the value range, while expanded volume above or below the area suggests breakout moves and acceptance of value higher or lower. The volume bulges at various prices can be conceptualized as near-term resistance and support; the shape of the total distribution can offer helpful clues as to the market structure on the day timeframe: whether we're building a trend day, range day, double distribution day, etc.
If you review my posts that feature the Market Delta charts, you'll pick up on patterns that are useful for short-term traders. I will be adding to those posts in coming days and weeks. .
Author of The Psychology of Trading (Wiley, 2003), Enhancing Trader Performance (Wiley, 2006), The Daily Trading Coach (Wiley, 2009), Trading Psychology 2.0 (Wiley, 2015), The Art and Science of Brief Psychotherapies (APPI, 2018) and Radical Renewal (2019) with an interest in using historical patterns in markets to find a trading edge. Currently writing a book on performance psychology and spirituality. As a performance coach for portfolio managers and traders at financial organizations, I am also interested in performance enhancement among traders, drawing upon research from expert performers in various fields. I took a leave from blogging starting May, 2010 due to my role at a global macro hedge fund. Blogging resumed in February, 2014.
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