Market Psychology Update for 9/1/06

9:18 AM CT - One more thing. Go back to the 8:25 AM post, and you'll see why I added that comment. We had a failed breakout attempt at 1311 as mentioned earlier, then moved back into yesterday's range, then retested the average price from yesterday. This pattern is a reliable one. The distribution of the TICK and willingness of sellers to hit bids from here will determine whether we traverse the entire range from yesterday. Best of luck trading, and have a great holiday.

9:00 AM CT - The NYSE TICK remains positive all AM, and as long as there's that bid underneath the market, a sustained decline is unlikely to materialize. So where does that leave us? We've got the resistance at 1311 and need to see some healthy volume lifting offers to surmount that level, and we've got the overnight lows--and the low from the market's initial dip on jobs news--as support. If volume tails off dramatically from here, we could stay in this rangebound mode. So far, volume is starting to wane from levels that, earlier, were a bit better than what we've seen the last couple of days (not much to say!). I'm off to work on research on a longer-term trading system; have a great holiday weekend! Update tonight on the Weblog and daily postings here through the weekend.

8:51 AM CT - There was quite a bit of reaching up and lifting of offers from breakout traders at 1310.75 and 1311 and large locals absorbed that volume and shoved the market right back down. Now that level becomes important resistance, and whether we can sustain buying at and above that level will tell us much about whether we're likely to get any trending move for the day. Given the Russell weakness--a change from recent days--I doubt the bull will rule the day.

8:37 AM CT - Major buy orders hit the market from 8:34:44 to 8:35:06 a bit ago. I like to track where those print (1311) and see how the market absorbs them. That tells you a lot about the strength of a breakout move.

8:25 AM CT - Oh yes, BTW, if we trade back into yesterday's trading range and cannot break higher, a move back to yesterday's average price of about 1306 is probable. Given the small size of yesterday's range, that's not much of a move, but it's a trading concept worth operating with in general. If you take a break during trading, check out the Futures Trading Summit sponsored by the CME, CBOT, and NYMEX. I'll be on the program and will have more to say later about this worthwhile event. Normally I'm not keen on trading seminars and don't participate in the usual industry BS events. As an exchange-sponsored event, this promises to be different.

8:10 AM CT - Interest rates spiked initially on the jobs news, moved back lower (corresponding to stock index strength and a move above 1309 on the ES, and now rates are back up at morning highs and stocks have eased back a bit. Still, not much has changed from yesterday. We continue to see a bid underneath the market, as reflected in the TICK (see Weblog), and that helped us hold the pre-opening lows of 1303 yesterday, and it helped us hold the pre-opening lows of 1304.75 today after the economic report came out. So we have a couple of good levels below us to lean on, and--given a bit of favorable seasonality pre-Labor day and start of the month--I again would look for buy setups that stay above these levels. A break below the levels would represent fresh selling interest and would eliminate any long side bias. As I've emphasized in these updates, however, figuring out who is in the market and how actively they're participating is key to understanding how much opportunity we're likely to have. (See my previous post on VIX and opportunity, BTW). If we have below average volume early in today's trade, I'd once again expect choppy, rangebound market action that offers very limited opportunity. A break above the pre-opening highs or below the pre-opening lows that is accompanied by sustained, raised volume would represent an important market shift of participation and would much more likely be associated with a trending move. I have my doubts whether we'll see that today--especially as the day goes on and we get closer to the long weekend--but let's keep an open mind. Markets sometimes make their moves when we're least expecting it.