Monday, February 05, 2007

Monday, February 5th, 2007 Morning Comments

10:25 AM - We're pretty much in the middle of a 4-3/4 pt range in ES; note how volume has tailed off substantially. The distribution of TICK has been on the negative side; we're also seeing more ES volume at bid than offer. Both of those things have me cautious re: the idea of chasing the upside. I'd want to see an upward shift in that TICK distribution and better performance from the Russell in order to take the long side. All in all, however, the scenario is consistent with a high upside momentum market taking a pause before it attempts new highs. Update tonight on the Weblog; I may also try to update that market pattern described below. Have a great day!

10:15 AM - I'm working on a new setup that seems to materialize fairly often for a good short-term gain. I actually did get an initial move my way on both the trades placed today, but no follow through and hence the scratches. The logic underlying the setup is this: I'm looking for evidence of program selling among the large caps, as indicated by $E-PREM and $TIKI, that does *not* spill over into selling in the broad market. Think of it as a virus that hits a population, but turns out to not be highly contagious. When that program selling abates, there is generally a pop upward in ES as sellers temporarily back off, unable to push price meaningfully lower. (E-PREM is the S&P emini futures premium to cash; $TIKI is the number of Dow Industrials stocks trading at offer vs bid quoted every six seconds). The key is to distinguish program selling (simultaneous trading of Dow stocks at the bid as revealed by $TIKI and preceded by downward moves in E-PREM) that is accompanied by broader selling (which is what happened earlier this AM) from program selling that is unable to push markets lower and will eventually lead to buyers coming in. I will need to figure out parameters for the setup and more carefully define an entry criterion, but so far I think this may be a worthwhile pattern to investigate. My second scratched trade attempted to take advantage of this. Back to wrap up in a few.

10:02 AM - Well, you know, I went into the day expecting a transition from an uptrending market to a rangebound one per the research on the Weblog and so far that's what's materialized. We tried to take them up early in the session, program trades hit the market hard and took us below Friday's lows, but selling dried up at those levels and buying brought us right back into the Friday range. There's a saying in medicine, "Above all else, do no harm." That was my goal for today as very odd freeze ups in my platform occurred several times. The only good thing that came of it is that I got to see how my work on my emotional discipline has paid off. No cursing, no frustration. It's just one of those days. The one thing I *can* control is not letting the situation push me into bad trades. I'll be back in a few to explain that last scratched trade.

9:52 AM - And yet another scratch.

9:48 AM - Long some ES here. I'll talk a bit about this trade in a few min.

9:37 AM - I'm definitely a day late--fortunately not a dollar short!--due to major problems with my datafeed. It's keeping me out of the market, which may be for the best. What we saw is a taking out of the Friday high, but a waning of selling in ER that showed up nicely in a 5 min Market Delta chart. Seeing that, and a bid underneath ER2 is what had me scratching the trade. I was loaded up to go long ES and everything froze. Just like the weather and the Bears. Be that as it may, it's put us in a range in ES and I'm watching from here for clues as to a break from that range or at least pullbacks into the range on failed breakout attempts.

9:25 AM - Scratched that one.

9:15 AM - I'm short ER2 here...let's see if the selling continues based on the thesis below.

9:10 AM - Note how volume has picked up on the selling and how ER2 has gone from leader to laggard with the broadening of the selling. That has me leaning toward the idea that we've seen a high for the AM (and possibly the day) and thus I'm looking to sell bounces.

8:58 AM - The very negative shift in the TICK for the Dow stocks (TIKI) had me concerned, and notice how that selling has now broadened out to the small caps, as reflected in the TICK.

8:55 AM - What's keeping me from going long are persistent sell programs in the large caps. I'll explain in a bit.

8:47 AM - Russell and NQ continuing to lead ES with underlying strength as reflected in positive shift in TICK. That leads me to be a buyer on pullbacks that stay above the AM lows. Note we've taken out Friday highs in NQ. Those highs are a target for ES.

8:42 AM - Good buying off the overnight support. I won't be selling as long as ER2 is making highs above its overnite range.

8:35 AM - Some strength in oil and energy issues here. Very narrow TICK with declines leading advances by about 360 issues. Volume quite moderate in ES, with more volume hitting bids.

8:32 AM - I've edited the comments below given problems with my data feed re: DAX.

8:15 AM CT - Good morning! It's wicked cold in Chicagoland--recently 35F below zero with the chill factor--and the sentiment of Bears fans is even chillier following the Super Bowl. Let's see if we can warm things up to start a week of trading. We have ISM non-manufacturing (services) numbers coming out at 9 AM; that's it for economic releases today. Expectations are for a strong reading, in line with recent estimates of GDP growth. Meanwhile, we have some firming of the dollar vs. the Euro. We've seen overnight support in the ES contract at 1449.75; note that Friday's low was a point lower. (Pivots for Monday's trade are on the Weblog). If we get early selling drying up above the overnight lows, I'd be looking to buy to test the Friday highs; inability to sustain any test of those highs (buying drying up) would target the Friday pivot level/VWAP. Back after the open; when you have time, check out recent trading lessons from these morning sessions.