Tuesday, September 12, 2006

Market Psychology AM Update for 9/12/06

10:45 AM CT - Per my last entry, at the end of the day when you review charts, take a look at a 5 min chart of the NYSE TICK vs. the ES. You'll see how pullbacks in the TICK around the zero area represented good short-term entries to the long side once we had the upside breakout move. This is a pattern that you'll see during many uptrend days. Note also the tendency of those uptrend days to close near their highs and to make their highs in the last hour of trading. That means that you want to keep riding those short-term entries until the TICK and price take you out of the trade. The last trade of a trending move is always a loser... :-) Have a good one.

10:00 AM CT - One last note before I go off for my phone meeting. On a good breakout/uptrend day, what you'll see is a positively distributed TICK where the TICK will come down toward the zero area (not much below -200, certainly) on dips and then retest and take out highs on subsequent TICK rallies. You can think of an uptrending market as one in which successive dips in the TICK occur at higher price levels. With that in mind, those dips in the TICK become candidates for short-term entries to the long side. Have a great day--

9:38 AM CT - No Odds Maker signals so far this AM. We haven't gotten the pattern of thrust and then retracement needed for that signal; it's pretty selective. There were, however, a couple of signals among the Dow stocks. I might start tracking those here in the near future. I have to prepare for a phone conference with traders at an investment bank; will post again if any major new developments. Otherwise, have a great trading day. Update tonight on the Weblog.

9:30 AM CT - Once the Russell saw some lifting of offers, the averages moved in gear, with a continued positive TICK distribution. In general, when you see persistent positive TICK distribution, it will only be a matter of time before price catches up. Another important indication is persistent strength in advances vs declines, with 1200+ more issues now advancing than declining. As long as we stay above the recent trading range and see continued positive TICK and net volume at offer vs bid, the bias should be to the upside.

9:22 AM CT - The Russell and financials are lagging a bit here on this most recent ES runup. Be careful, despite very positive TICK distribution. I'm watching Russell closely for clues as to direction from here.

9:13 AM CT - Paper came in big and swiped a large offer from the locals at 1314.75, but since then we haven't seen persistence of buying (which surprised me). If we move back into the recent trading range, remember that 1309 as an average price would be a target.

8:55 AM CT - Huge battle between big bids and big offers at 1314.75. If we take out those offers, I'd expect some decent upside.

8:46 AM CT - You can see that the attempt at highs is labored here among the 3 indices, with volume at offer so far not getting it done. Interestingly, volume at bid was quite high even as we rose early, suggesting lots of selling into the rise. TICK distribution remains positive, however, so it will be tough to maintain solid downside as long as that's the case.

8:36 AM CT - We've opened strong; solid volume, positive TICK, advancing stocks lead by more than 750, but I need to see us break yesterday's highs in Russell and NAZ before I get too eager to chase highs.

8:28 AM CT - Good AM. A little data problem here, but not too serious. I'll be updating major shifts in volume this AM, along with any signals we might get from the Odds Maker setup described on the Trader Performance page. We dipped below the PM lows overnight, but since have recovered nicely and are trading near the highs of the afternoon. Note that we've had average daily prices of 1308-1309 for three days now: the big issue is whether or not this will be a magnet for current prices or whether we'll see an upside breakout from here. Update shortly after the open.

8:06 AM CT - Just a quick modeling note. Adam Warner notes that the volatility of the VIX itself recently reached a 52 week low. I examined 10-day average ranges in the VIX from October, 2003 to the present (N = 732 trading days). When the average daily range of the VIX was under 5% (N = 60), the next five days in SPX averaged a loss of -.52% (23 up, 37 down). That is much weaker than the average five-day gain of .17% (414 up, 318 down) for the sample overall. Returns seem to be better when there is volatility in the VIX itself.