Monday, September 18, 2006

Market Psychology AM Update for 9/18/06

9:57 AM CT - Just as soon as NQ showed a touch of life, selling hit the market and back we went to that midpoint of the AM range. Being able to discern a range bound market from a trending/breakout one is *so* important. That's it for me today--it's off to my other trader-related activities. Have a great rest of the day. Update tonite on the Weblog.

9:46 AM CT - Turns out that the Odds Maker trade fading the 30 min upside breakout closed pretty flat. We just haven't gotten much selling pressure all AM long, with TICK largely staying above -200. We'll need more of a negative shift in that TICK distribution to sustain a downside move. Volume continues to wane, and it wouldn't surprise me to see continued range bound action. No high relative volume signals to this point in SPY. NQ a little strong here.

9:37 AM CT - A bit of a negative shift in the TICK distribution, but still no strong selling thus far. Nothing to dissuade me that this is anything but a range bound market. So you look to buy near bottoms of ranges, sell around tops, play for those moves back to the mean. Volume slacking off. 100 more advances than decliners. Very mixed market thus far.

9:27 AM CT - Buying dried up as we approached those overnight highs. Nice lead signal by NQ. 1332 is the average price for the day session so far.

9:19 AM CT - NQ looking a bit heavy here; didn't follow the other averages to new highs.

9:15 AM CT - Remember, 1335 is overnight resistance. We got that breakout move with an expansion of TICK and confirmation from NQ and ER2. It's a case where I let my order flow read override taking a signal at the time the signal is given. If we see buying (volume at offer) dry up here, I'd be willing to entertain the short trade. Otherwise, with a positive TICK distribution and volume at offer outpacing that at bid, there aren't too many reasons for getting aggressively short.

9:08 AM CT - I'll be watching for a possible move above the 30 min opening range to see if buying dries up. If so, we have a short entry with a holding time of 30 min. I'll want the confirmation of seeing buying drying up to take that trade, given the modest selling thus far and the fact that we're near the middle of a trading range.

9:00 AM CT - TICK readings never really turned significantly negative so far in the AM and have steadily improved, moving us toward that initial price target. No Odds Maker signals thus far; SPY is not displaying high relative volume--another indication of local-based trade and not heavy institutional involvement.

8:50 AM CT - Volume tailing off here, with mostly local trade. Continues to have me thinking about range bound action today. Let's see sellers take their turn and how the averages hold up. Yesterday's average price is 1332.75 (initial upside target) if we hold the AM lows.

8:40 AM CT - Declines ahead of advancers by over 400 issues; more strength in NQ so far than in ER2. Very muted TICK distribution so far, which suggests modest volatility. I'm watching to see if that continues. If so, odds of a range bound day are quite high. We're trying to put in a low at the 1329 level; I'm watching ER2 and TICK for clues to the success of that effort and a possible move back into the thick of Friday's range.

8:30 AM CT - We've taken a tumble since the overnight highs in response to higher interest rates. My leaning is to wait for the buyers to take their turn and see what they can muster before jumping on the short side. My initial trade idea is to look for a minimum move to the day's average price of 1332.75 if we hold the lows.

8:17 AM CT - We continue to trade in a range between Friday's highs and lows, with overnight resistance at 1335 and Friday support at 1329.50. We're also at May highs in many large cap indices, with quite a few sectors not confirming new highs to this point. So, all in all, some notes of caution. I'll be tracking the "relative volume" measure this AM, per the latest Weblog entry, and will be watching carefully to see how volume flows shift as we approach the edges of the current trading range. How we hold up at the lows early this AM will likely set the tone for the rest of the morning. Let's also keep an eye on breakouts from the opening 30-minute range. Fading those has been a winning trade, according to Odds Maker.