Market Psychology Update for 8/28/06

10:30 AM CT - Buying indications--the volume lifting offers and the TICK--have stayed positive all morning, but are slowing down. I want to see ES stay above its Friday highs--and for the buying pressure to continue--to sustain the day's uptrend. Note that if we move back into Friday's range--especially on a pickup of downside volume--we go back to targeting that average price (1298). Notice also that the NASDAQ is not yet above its Friday highs and is looking a little tired here. I wouldn't be surprised to see the market slow down into the noon hour. Hope you have a great rest of the day; update tonight on the Weblog.

9:33 AM CT - Hopefully you were able to see the persistent positive distribution of the TICK even on pullbacks and continuing dominance of volume at the offer vs. bid. A market that has negative historical expectations and persists in acting strong is sending a message, and it's important to be flexible enough to follow that message. That's why I like to say that I try to identify what the market is doing; not simply predict. In any event, we're getting continued buying--and an increase of volume with the buying--as we are at Friday's highs. That needs to be respected.

9:00 AM CT - Volume has been moderate, but what volume has been there has definitely been skewed so far toward lifting offers. The NYSE TICK has barely gone negative all morning. As mentioned earlier, tape action has to confirm any historical bias to move aggressively on the short side. The key to the day's trade will be to see if volume picks up and large numbers of stocks participate in any tests of the recent range extremes, or whether we stall out with low volume and remain range bound.

8:20 AM CT - Several analyses posted to the Trading Psychology Weblog over the weekend suggest a historical bearish bias over the next several days, so that's my initial leaning. We're approaching month's end and, seasonally, that tends to be bullish. The last week of August, however, has been down 6 of the past 10 years (but up the last 3 years). Of course, any bearish leaning has to be confirmed by the actual selling vs. buying activities of the market's largest participants. If large locals and paper are lifting offers and keeping ES above its average trading price from Friday (1298), market history won't amount to a hill of beans. What I'll be looking for in early market action is whether or not we get active participation in the index futures markets. We've been range bound for several days, and that's most likely to continue if volume remains light. The average trading volume for the first 15 minutes of ES trade this past week has been about 45,000 contracts. The second 15 minute segment of the day has averaged a bit over 30,000 contracts. As long as volume does not expand meaningfully from these parameters, I'll be hesitant to chase rising or falling markets near the range extremes.