Friday, February 9th Morning Market Comments

9:38 AM - OK, I'll be getting ready for the traders in Chicago; gotta wrap up. Note that we opened near the high of the recent range. Volume started robust and we saw buying in the semis. When ER2 showed weakness and subsequent buying came on much reduced volume, I saw that buyers weren't going to take us above the preopening highs. That led me to sell, with a natural target at the overnight lows. Notice how helpful the tracking of volume can be. It told us that buyers were abandoning the early market, and then recently it told us that sellers were in the wings. That leads us to be sellers on TICK bounces, targeting the next set of lows--until we see evidence of large traders coming into the market as buyers. More important than my specific trades is taking away from how I'm looking at markets something that can be useful to your own trading. You may have very different setups from me, and that's great. By understanding who is in the market, however, and how much we're likely to move, you can take maximum advantage of those setups and stay out of unfavorable situations. Have a great rest of the day; update tonite on the Weblog; will be on the radio show this afternoon (see first entry this AM).

9:30 AM - No sooner had I mentioned the reduced volume and taking quick profits than we saw a program hit the market in ER2, drive the TICK to a new morning low, and then volume at the bid followed on the heels of that. You had to be pretty nimble to take advantage of that, but it did take us to that initial AM target. From here, you pretty much have to be selling bounces if the pickup in volume continues, with the midpoints an obvious next target. Keep an eye on volume during the bounces; if it's particularly light, the bounce is more likely to be reversed.

9:26 AM - Some program selling hit ER2. Keep an eye.

9:23 AM - If I *had* been in that short position in ES, I'd have been out by now. Volume really tailing off and TICK not getting it done so far for sellers. It would be another take what the market gives you trade.

9:20 AM - Keep an eye on ER2, esp if it's not making new AM session lows.

9:16 AM - Notice how we've basically gone nowhere since volume tailed off. That volume/volatility relationship is *so* important. I'm actually pretty comfortable being out of the market; no real evidence of important selling in TICK, but also struggling to get to the overnight highs. Not my kind of trading market in general, although well timed trades for a scalp, small profit can work.

9:12 AM - Ideally if you're going to be short, you want to see evidence of sellers *before* you commit. Failure to make highs (or failure of buying to produce highs) often precedes sellers coming in (and sometimes I'll front run that process with an initial position), but the highest odds trades come when you're getting lower lows in the TICK, lower highs in the TICK, more selling at bid in Market Delta, etc. I would never go in with maximum size prior to seeing direct evidence of selling.

9:10 AM - On a normal day, I'd be selling bounces in the TICK that can't bring us to new highs, looking for a test of those overnight lows; then a test of pivot/VWAP from Thursday.

9:07 AM - I'm probably done trading for the AM, as I'll need to get prepared for my meetings with traders. Just about every trade I've made this week has given me a point of profit; the problem is that the profit has quickly evaporated when markets didn't follow through. So when I got my point this time and I saw volume really tail off, I decided to take the modest gain and call it a trade. In retrospect, that was the right move. More in a bit.

9:03 AM - A logical downside target is the 1453 overnight low in ES if you're holding a normal position. I'm quick in and out this AM due to having to leave for Chicago shortly.

8:59 AM - Took quick profit.

8:54 AM - Volume has tailed off, but semis remain strong. Need to see them turn over; otherwise I'm out.

8:48 AM - Initial short in ES; tight stop.

8:45 AM - Volume is average in ES. Waiting to see if it tails off or picks up steam with buying interest.

8:42 AM - Selling in ER2 has kept me from taking the long side. If we get subsequent buying that can't make new highs, I'm back in the mean reversion mode, selling with a target of the Thurs. pivot.

8:39 AM - I may test bullish waters with an initial position, but we need to stay above 1453.25 for that idea to hold.

8:37 AM - NQ strong on heels of semis; ES takes out previous day's high; very solid buying (lifting of offers in ES) so far.

8:35 AM - Volume a bit above average if you're following your volume sheet from the recent post. More volume at offer than bid in ES. When I saw SMH pop higher in preopening trade, that had me looking at semis as a source of early strength.

8:28 AM - Keep an eye on semiconductors this AM; let's see if they lead.

8:18 AM - OK, we have what could be the makings of a slow day, with a Friday coming at the end of a series of narrow, rangebound days and no major economic developments on the horizon. We dipped below the prior day's lows in ES yesterday, but as I pointed out in the morning comments, that was not confirmed in the other averages. As a result, we rebounded back into the trading range of the past several days. I'm watching to see if that relative strength in NQ and ER2 continues, and I'll be watching AM volume to handicap the odds of today being slow and rangebound as well. If so, and if early buying cannot surmount the overnight highs, we have logical initial targets at the Thursday pivot and VWAP (listed in the Weblog). That's my primary trading scenario. I would only be a buyer of ES if we see upside strength in those other averages and an expansion of volume (and volume lifting offers) in ES. I'll be finishing early today to get to Chicago and meet with traders. Back after the open.

8:10 AM CT - Good Friday morning! Thanks to readers once again for the many excellent comments and insights in response to the recent poll. Indeed, there were so many good--and unexpected--observations that I'm taking extra time to synthesize them and produce a summary this weekend. That will also give me a chance to catch up on emails and blog comments! As noted on the Weblog, I'll be doing an online radio program for Jack Bouroudjian this afternoon at 3:00 PM Central Time (link on left side of that page). I'll also be visiting traders in Chicago before that, so today's morning comments will be abbreviated. Check out today's post on how to track volume patterns during the day; it provides a tool that I have found very helpful. This weekend I'll also be following up on my earlier post on promising biofeedback methods for "in the zone" performance. Comments on the opening market to follow shortly.