Market Psychology AM Update for 9/27/06

9:55 AM CT - Continuing to see a bit of relative strength in NQ and ER2 and that's helping hold the downside. Nothing really happening to change my range view so far, though I suspect that 1350 area will pose important resistance today. That'll do it for this AM; hope you have a great day; thanks for the kind comments re: the blog.

9:45 AM CT - Let's see how well we hold up at 1345 after a couple of selling bouts. NQ and ER2 so far holding up above their recent lows.

9:42 AM CT - The trade is very much like yesterday afternoon's, with program buying coming in sweeps, followed by sharp, short retracements. The elevated volume at these times suggests that it's not just locals playing games. We have some large programs being executed, and those spikes in the TICK create a positive distribution that make it hard to fade the strength. Still, even with the buying, we're having trouble surmounting that 1350 area. We're in a 7 point ES range thus far, and I'm not seeing anything yet to convince me that this will change.

9:23 AM CT - What we've been seeing IMO is a puking of longs, not--so far--an initiation of great selling. Volume at bid only slightly leads volume at offer on the day and, unless that changes, I expect more of a trading range than an outright market rout.

9:15 AM CT - Well, that didn't take long to materialize, either. Quite a rejection of price at 1350. That becomes important resistance and now we look for a range to form.

9:05 AM CT - Nice pop on better than expected housing sales. I'm watching NQ and ER2 closely to see if we hold those gains. I have some doubts, but want to see buyers unable to push prices higher before fading.

8:50 AM CT - Well, that didn't take long to materialize. An upside breakout in the TICK and participation by all indices has led us to test those recent highs. That 1344.75 area is now our near-term support. Staying above that with a positive TICK distribution should help us sustain new highs in the early going. I am not necessarily at all expecting a trend day to the upside, however, given the mixed participation in the recent rise per the recent Weblog entry.

8:40 AM CT - Ahead of the housing number, we're seeing modest volume and a very restrained range in the TICK--all of which suggest muted volatility. So let's keep an eye on that. The longer it persists, the greater the odds of range bound trade. The preopening low of 1343.25 is initial support, and above we have the highs from yesterday and the overnight high. Notice how the restrained response of the dollar and bonds suggested that the initial drop in equities would not become a major selloff. Basically I'm waiting for sellers to take their turn and see how the market trades re: recent lows at that point, to see if it's worth taking a long position for a test of the highs. I want to see some ER2 strength before jumping in; let's see if it holds above preopening lows.

8:00 AM CT - A weaker than expected Durable Goods report has sent futures indices lower in pre-opening trade. We had broken out above the 1340 resistance and need to stay above that level to sustain the uptrend. Yesterday's average price on ES was 1341.5; the high was 1347.25. Normal expectations would be to test that high in AM trade; failure to take out the high would target the average price. New home sales come out at 9 AM CT and will provide yet another data point re: economic weakness. Note that interest rates have come down on the AM news, but so far remain above 9/25 lows. No big move in the dollar. In the absence of trending moves in those markets, I do not expect the economic news to create a trending breakout in today's equity trade, the opening drop notwithstanding. Back after the open.