Monday, September 11, 2006

Market Psychology AM Update for 9/11/06

11:00 AM CT - OK, I'm glad we had at least one Trade Ideas setup from Odds Maker today. Turned out to be a pretty good signal, all in all, given the tail-off in market volume. You can see the tension between monitoring order flow/using discretionary exits vs. letting the trade play out for the full 30 minutes. I would have been content with four ticks profit in a slow market, but could have pulled more out if I had been more patient. Waiting the full 30 minutes would have not made a huge difference vs. exiting early, in the end. Let's continue to track the signals tomorrow. Have a great day.

10:45 AM CT - Volume has really tailed off here, so in reality I would probably take what the market gives me, work a bid for a point profit, and call it a win. Yes, it could always break down, but I don't see the sense of hoping for volume when you can take a point out relatively easily.

10:39 AM CT - The setup was triggered at 10:29 AM CT, so the time-based stop is 10:59. My idea was to use order flow to manage the position. For me, 1307.50 would be a "catastrophic stop" to the trade; I'd also rethink if we had another thrust of TICK above +1000. My preference is to let a negative TICK thrust take me out of the trade and only stay in for the full holding period if I'm seeing downside volume pick up.

9:58 AM CT - I continue to show the 1306.5 area as an Odds Maker sell signal if we seeing buying dry up around there. The market has been trying to hold lows in this low 1300s area, but we'll need much more sustained buying interest (TICK, volume at offer) to accomplish that. Watch that TICK distribution. I'm outta here for the day; update on the Weblog tonight. Have a great day.

9:49 AM CT - Some slowing of selling in ER2; keep an eye out.

9:43 AM CT - The move down qualifies as a downthrust. If we get a bounce to the 1306.5 area with buying drying up, that would trigger the Odds Maker sell signal. Note the continued Russell weakness, and the negative distribution of the TICK. That will need to change to break the significant upside resistance around 1307.5. Any test of 1303 will need to see expanded participation to create a downtrending move; be careful if we break that level but do not see an expansion of volume at the bid.

9:30 AM CT - Tough to trade this market if you're not a scalper who reads the order book. Some large offers stayed in the book as we broke 1305, and that pushed us down. Sellers in control; 1303 the overnight low; 1307.5 is the AM resistance.

9:27 AM CT - I'm not seeing the same big bids at 1305 so far; some flashing of big offers

9:22 AM CT - The big bids came back at 1305, so you can see what the locals are doing: pushing the market one way into their bids and then the other way into their offers. That creates the runs and the rangebound trade.

9:14 AM CT - Some flashing of big offers a few times at 1307; it's only if they stay in the book that they truly count. But so far they've warded buyers off.

9:02 AM CT - Some volume pickup when the market's moved down, but still very much a local dominated market, running up and down in that value range for the most part. Notice how the Odds Maker setup keeps you out of a slow, narrow market. There's no thrust up or down to begin the setup and thus no pullback from the thrust to trigger an entry. Obviously, we could widen the search by looking for volatile stocks or ETFs for the pattern, but that's for another day.

8:55 AM CT - What we're seeing is a lot more selling in the broad market than in the large caps. Note the Russell weakness and the declining stocks with a 1300+ lead over advances. TICK distribution has gone negative, and so has the balance of volume at bid vs offer. There's some real absorbing of selling around that 1305 level per my previous post.

8:52 AM CT - Some big bids defending the market at 1305.25 on a few occasions. Watch for a selloff if they can't hold the market.

8:45 AM CT - Volume is modest; certainly no great signs of either trending activity or heavy institutional involvement thus far. Note how we're traversing one end of the value range to the other, per the last update. Declining stocks lead advancers by nearly 1000 issues, and the TICK has stayed in a narrow range. Volume at offer has outpaced that at bid in early ES trade; NAZ showing a little strength here. More in a bit.

8:26 AM CT - I show the fat part of the value area over the past three sessions as running from 1306 to 1309.50. In a slow, rangebound market that region will serve as a magnet, and moves that fail to break out of that range will tend to test the opposite side as part of normal rotation. Note that we were unable to sustain a break below that range in the pre-open, so a move to new lows that shows strong participation would represent fresh supply hitting the market. Please note that any alerts generated from my Odds Maker screen are not intended as trade recommendations. This is simply a setup that I'm following in real time as part of learning the Odds Maker program and gauging its utility. Consider the information one input into your market thinking. It can't substitute for that thinking!!

8:10 AM CT - Good morning! We've traded lower in the preopening of the ES market, dipping below Friday's lows before recently moving back into Friday's range. We have overnight resistance at 1310 (Dec. contract) and the preopening lows represent our support. Recall that volatility in the overnight session is associated with greater movement during the regular day session, so I expect one of those levels to be taken out. We'll be watching to see if there are signs of institutional participation in such tests and if volume picks up at those extremes to handicap the odds of breakout vs. return to value. Meanwhile, if you haven't read the blog entry on combining system and discretionary trading and my Trader Performance page describing the Odds Maker setups I'll be tracking, please do so. I'll be watching this AM to see if we get any real time setups from the pattern I tested. Back after the open.